Market Update

General - Panoramic - West African - Cardinal - Strike - Kentor - Beadell - Kingsgate

Good afternoon

finally, back to the office after touring Florida for 12 days! Something I will not repeat in the next few years, for sure! And nothing which improved my feeling towards the US! Obviously, Florida is not the States, and I am sure, that California and the Eastern States are a bit different....! Still, for now, Trump and Florida have been a bit too much for me...

Over the last few days, gold has been pretty disappointing. Against the backdrop of a weak US$, it failed to hold on to gains straight after Yellen indicated the usual lower-for-longer story....but having said this, the very strong 1st Quarter performance is probably crying for some consolidation. In A$ terms, gold has been ugly - falling from a February-high of above 1750 A$, to just under 1600 A$/oz right now. No surprise, therefor, that Australian gold producers have shown some weakness lately. The small stocks, mainly exploration-driven, have still seen a lot of underlying interest - West African, Cardinal, Gascoyne, OreCorp, Oklo among others have put on some stunning performances.

Base metals have also failed to profit from the weak US currency - but prices have held up halfway ok. Recent strong manufacturing numbers, especially from China, are reason for some hope, as iron ore is holding up well in the mid-fifties.

The A$ has had a strong month against the US$ - rising from a low of 68ct in January to a high last week of 77ct. The interest rate differential vs all major currencies is strong - still, the currency is certainly overvalued at current levels, and I would expect the A$ close the year rather 10% lower, than 5% higher! But for now, it´s hurting miners and many others as well.

Oil is seeing new weakness based on Saudi comments, to only curtail production, if Iran does the same - for obvious reasons: Everybody knows about the "love" between the countries. This is obviously something Iran cannot agree to - they are only just starting to increase production since the embargo has finished.

So - little joy in my absence for resources investors! 

Panoramic - has been exposed to two weak metals, gold and nickel, plus a strong currency. They have had a few important announcements during my absence: A Scoping Study came out for only the free milling part of their resource Gidgee ( 300.000 oz vs total resource of 1.3 mill oz ), which is looking for 60.000 oz yearly production for 6 years, at AISC of 1209 A$/oz. Pre-production capital of 62 Mill A$, and a project NPV (5) of 58 Mill A$, at a 1700 A$-gold price. These numbers don´t really get me over-excited - but they clearly show, that the project is worth something.

The next announcement, regarding exploration in Savannah, got me more excited - even though the nickel mine will remain closed at current nickel prices. Long interesections of 12-to 28m ranging from 2% nickel to 2.47% nickel, and around 1% copper have been exciting, but equally positive was, that the resource looks like extending to within 40m from existing development. Drilling is ongoing, and we expect a significant resource conversion, as well as a larger resource from this program. For Lanfranchi, we are also expecting a new resource estimate in April. I am sure, that you are fully aware of the high potential value of Savannah especially - but better nickel prices than today are needed and in our opinion, will be seen at some stage! it´s just impossible in the long run to see 70% of the world´s nickel production loosing money on a cash basis!!

The latest announcement has not been a pleasant one: Peter Harold is raising 10 mill A$ from shareholders, in a 1:3 rights issue at 10ct, ex date was today. The cost of closing down both nickel mines is potentially higher, than anticipated, and some of the contract cancellations with suppliers are being disputed. So it could be, that closure-costs will exceed the expected 9-10 mill$ by 2-4 mill$. Peter Harold is a conservative man, and he wants to make sure, that the company has enough cash in the bank to survive even a lengthy period of low nickel prices. Not pleasant for us shareholders, as a rights isssue always puts pressure on a stock - but I will certainly take up my rights.

West African Resources - announced more excellent drilling results from their advanced gold project in Burkina Faso. 4m of 87g/t around 80m from previous high grade results, 7m at 13g and visible gold in the latest hole ( not assayed yet ) extend the high grade area to at least 300m ! Following some good results earlier on, I am sure of not only another 1 year of additional resources ( that was the original minimum-target ), but several hundred thousand ounces, which could take the mineable resource much closer to 1 mill oz and nearly double the current resource. The stock ran pretty hard on excellent turnover - I think any further advances would tempt them to raise more money, as cash is not sufficient to carry on exploring as actively as now for the rest of this year. Great story, still - but while I am a resaonable sized holder, I would probably hold off any buying for now. Stock needs a break, and there is no need to pay 15-16ct - that is as high as they got last week,.

Cardinal Resources - also announced some more good drilling results from Burkina. Very different to WAF, tehy look like having a potentially large, bulk mining resource - grading rather 1.2-1,3g/t. But this is no problem, if they get the size - and they are certainly showing a lot of promise in that regard. The recent capital raising of 5.5 mill$ should be sufficient to get a good feel for the real size of their deposit. The next round of drilling will look at extensions, and especially, depth extensions by drilling a few deep holes. Grades are always catching investors money ( as with WAF ), but this could be an equally good project.

Kentor - good to hear again from them! Simon Milroy is not giving up on his copper project, and he might be proven right. Recent drilling has targeted a new exploration concept,a nd while assay results will take another 3 weeks, it looks like he has been very sucecsfull in extending some earlier high grade results, or even increase the grade. Only time will show, and I really hope for Simon, whom many of you have met over the years, to get it right here! It´s not easy to bring on new copper production at a price of 2.20$/lb - but he is battling on and keeps adding value to his project. 

Beadell - in the first place, some excellent drilling results, which should add ounces to oxide reserves, which is good news: 64m at 4g; 40m at 2.2g; 15m with 7g; 29m with 8g and finally, 33m with 32g ( probably not open pittable anymore - getting a bit deep ). The current plant configuration can only deal with oxide - so even more important to find oxide ore! A few days later, company announced results from the Urucum Deeps Underground PFS, which showed 40.000 oz p.a. additional production from underground, for 8 years based on current drilling status. AISC of 825 A$ are also positive, and pre-production capex is only 18 mill A$. There is also potential for another 150.000 oz, which need some more drilling. So - no company maker, but a very nice add-on to existing operations. The company will soon announce a new , revised mine plan for Tucano, based on increased cash generation - that sounds like we will see reduced production from open pit operations - I guess 10-20.000 oz p.a., but complimented at some stage ( 2018/2019? ) from underground. Overall, a positive outcome. Stock remains on the cheap side...new management still has to do some work for me to like it!

Kingsgate - oh no - more bad news! Company has downgraded guidance by 30.000 oz to around 100.000 oz. The reason is a permitting delay! Again, this shows, that the bureaucracy is very hostile for KCN - a difficult enviroment to work in. The company will not generate any cash, I fear - and the balance sheet is stretched....p erhaps, somebody brave is taking them over - otherwise, no need to hold them!

Paringa - is now starting the feasibility study for what is expected a very low cost, second coal mine, just around the corner of their first project. PNL recently decided, to start with their No.2 mine, given the very difficult enviroment to finance a coal mine - though a very profitable one. The very detailed scoping study for the No.2 mine calls for 42 Mill US$ only in development capital, and even that amount might be improved upon. PNL are still a good story - but very hard for investors to justify investment in coal these days!

Strike Energy - yet another announcement from them, showing huge promise and some progress - but still not the much desired news of commercial flows! Don´t get me wrong - I think management is doing an excellent job to advance their potentially huge project with very limited cash, but great diligence. But the stock is also testing our patience! STX are still one of my largest positions - risk vs upside is massively positive, in my opinion, and David Wrench will ultimately get there. If we are unlucky, it might require drilling of another well. The stock got suspended after hours for a capital raising.

Have a nice evening

WS

 

 

Wilhelm Schröder

 

Schröder Equities GmbH

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