Market Update

General - Evolution - Cardinal - Caravel

Good afternoon

I have been pretty harsh on England the last few days, and I feel the same today - perhaps even more so, listening to the comments of this lunatic Johnson. But I also want to emphasize, that 48% of British people voted "remain" - and I guess that 80% of people I know have been voting this way. These guys must feel much worse than we do in Europe - they will be fearing for their prosperity and for the future of their kids - and my sympathy is with them!

BUT - I think about 99.9% of Europeans sorrowly enjoyed Englands defeat against Island last night!! What an irony - England sensationally thrown out of the EUROPEAN campionship by an even smaller island.....

Enough of Brexit....there finally is some meaningful micro-news today, and the most important one is a great pleasure to talk about for me:

Evolution - had the first day of their corporate days today, concentrationg on a few presentations, before mine visits to follow.

Evolution has for the first time come up with three years guidance for production and costs, mine by mine. Anyone of us who has been in this game knows, just how extraordinary difficult and brave it is to come up with a three year forecast on every single operating mine, and normally I would very much question this. But Evolution has been exemplary in delivery of it´s forecasts over a very long time - hence I trust the numbers.

The 2016 financial year will finish with a record Quarter of 213.000 oz at 1075 A$ AISC - for 800.000oz in total at 1000 A$ AISC for FY 2016, resulting in a operating mine cash flow of 600 Mill A$, and net mine cash flow of 405 Mill A$. VERY impressive numbers indeed! Total debt repaid this Quarter is 115 Mill A$, and 322 Mill A$ in the last 10 month. Group debt is down to net 270 Mill A$ only!

For the next 3 years, production is forecast to be 800-860.000oz at 985-1045 A$ AISC for 2017 / 800-860.000 oz at 930-990 A$ AISC for 2018 / 810-870.000 oz at 910-980 A$ AISC. Not much growth left, but costs falling by another 6-10% over time! That is an outstanding forecast! At todays gold price, net debt will be gone in 7-8 month - which brings us to M & A: One big change here: The company wants to stay focussed on Australia, but after having analized every halfway sizeable gold mine in Australia, the company does not rule out aquistions outside of Australia. That´s a big change! 

And there is another big change: The company will - starting immediatley - pay out 4% of revenue in dividends - that´s double the rate so far. No wonder - the impressive numbers fas above for FY 2016 have been achieved at an average A$ gold price of 1600 A$/oz - today we are trading just below 1800 A$/oz, at which level the company should generate something like 450 mill A$ in free cash ( some hedging is detracting from the otherwise even higher number )

Jake emphazised, that the same , very careful and sorrow approach to aquisitions will continue - and only, if the asset quality of EVN´s portfolio can be improved. 

Exploration is the mainstay of growth, and most $ will be spent near Kalgoorlie on ground aquired from La Mancha and Phoenix last year. I have not had time to listen to every bit of the 4 hour presentation, which is talking a lot about exploration and how the company will increase mine life.

Jake has built a great company here, with great values, and very happy employees. If you have the time, it´s worthwhile listening to his presentation on the webpage!

He wants to make EVN the premier, Australian gold mining company. I believe, that he is on the best way of getting there!

Cardinal - announced the next great drill hole, hitting 310 m of mineralisation, including 80m with 1,06g / 79m with 1,34g / 42m with 3.37g. The grades are of significance here - anything above 1.1-1.2g will be helpful to increase the overall resource grade, which so far, has been just a little on the low side for my taste. But a few more hoels like this one could change that very quickly! One can see, why a guy with the calibre of Julian Barnes has taken over as Technical Director!

Caravel Minerals - I have had a small shareholding in this minnow copper explorere for some time. They came out with a very positive scoping study today: 35-40.000t of copper production p.a. for 20 years, at cash costs of 1 US$/lb ( at exchange rate of 0,725 A$/US$ ), for an  NPV7 pre tax of 520 Mill A$ at copper price 2.48 US$/lb, which is probably a realistic assumption. The payback of the 440 mill A$ pre-production capital ( incl 20% contingency ) would be 3 years. This sounds a a feasible project - low grade, low stripping ratio, good infrastructure, in Western Australia. This scoping study has been done on a high level, and that´s why only anpprox 1.5 mill A$ will be needed for the prefeasibility study. I could imgaine, that a small placement might be needed - but we are talking 2-3 mill$ here at worst, probably only 1.5 mill$.

The company has got some surpisingly good shareholders, given the very small size of the company - namely First Quantum, the major copper miner, which can contribute to costs, and would end up as a 50.1% shareholder. The project as it is, might be a touch on the small size for them - but I believe, that there is quite a bit upside to the project size. This little company is now firmly on my watch-list.

Last but not least - equities are rebounding very strongly today, and base metals are having their best day in a while - up by 2-3%, while gold is seeing some profit taking.

Have a nice evening


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