Market Update

Schroeder Equities - Market Update

Good afternoon

weak housing starts in the US today, and much stronger than expected PPI are helping gold to stay in good shape today. Industrial production in the States has been strong last month.

Indonesia will review the current ban of mineral exports, like nickel ore. At current prices of about 8.000 US$ for nickel, this would not make a differnce, as neither the ore-miner in Indonesia, nor the smelter in China would make any money. But it would certainly limit expected, stronger nickel prices going forward a year or two.


Heavy profit-taking pushed down gold stocks in the States yesterday, while Aussie gold miners have been extremely stronmg today! Strange one!

UBS technical analysts are calling for a new gold bull market, leading into new highs by 2020. They also see a major topping-out formation for the S&P, and signals, that the US bond will be trending higher into 2017 - overall, a perfect fit and coinciding with large interest in gold stocks, and strong recent inflows into the ETF. They are also calling for some consolidation, to remove the heavily overbought position of gold in the short term. All sounds like music to my ears! Nothing better than a tidy, 3-4 year bull market in gold!

In Australia, we have seen classic moves....the larger and more liquid names like Evolution have led the market higher, and will continue to do so, if UBS is halfway right - and stocks like my favourite EVN should be held as a backbone of a gold portfolio. 

But the real money at some stage will be in the "also-producers" like Beadell ( fallen from grace and just starting to recover from this ugly-duckling image ), Perseus ( which is well managed, but will always remain high cost = great leverage ), or even - and you would not believe it - something like Crusader and Panoramic. Not that I want to put these 2 into the same common corner, as there is a large difference in quality - but in terms of sensitivity to gold, they have something in common!

Crusader - have a market cap of 21 mill A$ these days, and are not far away from small production of 30.,000 oz or so , based on an initial high grade resource at their project Juruena in Brazil. To get there, they will need to raise a bit of money, though...I guess only 7-8 mill A$. I have no doubt, that Juruena will deliver many good results, once CAS will have some cash to prove it - preferrably from the initial production, which should deliver gold cash costs af around 500 US$/oz.  But almost forgotten, they own Borborema, also in Brazil, which has a reserve of 1.6 mill oz and had a feasibility study done a few years ago. In a recent presentation, the company has stated, that an optimised development plan will be published in early 2016...Clearly, with gold trading at all time highs in Real-terms, this got to be back on the agenda as well. And this is the type of stock the market will jump at, if gold continues it´s recent run.  I think we might see over the next few weks,  that punters will start to accumulate stocks like CAS, slowly but surely removing the selling from stale bulls.

Panoramic - my nickel favourite, having stopped all productipn from it´s two mines due to the terrible and unsustainable nickel price, will be sitting on 20 mill A$ or perhaps a little more, once both mines have completely been phased out, and once redundancy payments etc have been made. So for the current 27 mill A$ market cap, you are getting a lot of cash, and a great option on a 12 year+ nickel mine, Savannah, having a fully operational plant, which would cost 150 mill$ or so incl development, if it had to be built today.  I have no doubt, that these mines, and especially Savannah, have much more option value in the medium term, than today´s market cap does indicate. In the short term, though, the A$ gold price should be a more valid value driver for PAN. The company still owns the Gidgee gold project, for which a feasibility study has been finished, but never published. This feasibility study I believe has been done at 1600 A$ gold price. That´s now 1700 - and the company had stated earlier, that they would hope for a sale price of 20 mill A$ for Gidgee. Obviously, these expectations have been too high - if somebody had bid that price or close to it, I am sure, that the asset would have been sold. But for these smallish, and not high quality projects around 1 mill ounzes, 100$ in price should make a huge difference. The old scoping study from mid-2012 was calling for annual gold production 0f 80-90.000 oz at operating costs of 870 A$, for 213 mill A$ in cash flow before royalties at 1500 A$/oz gold price. At 1700-or even 1800 A$ gold, an asset like this suddenly becomes a real money spinner, and could/should easily be worth more than the market cap of PAN today...So - strange - but PAN might rather be a gold stock than a nickel stock for the next few Quarters! If I would be running say Western Areas ( with good cash flow ) or a cash horder like Chalice ( with 42 mill A$ in cash ), I would dare bidding say 50 mill A$ for the entire company, and stand a good chance of actually getting it in this crazy market!

Have a nice evning, and thank´s for going through the pain of subscribing!