Market Update

General - Evolution - Beadell - Resolute - Perseus - West African - Cardinal - Highfield - Panoramic

Good afternoon

bad start to my daily yesterday - it disappeared somewhere!

Anyway - here we go....

Mrs.Yellen has disturbed our party! Rising interest rates are certainly bad for gold, even though there are many reasons to buy it except for ultra-low interest rates! And it looks like we will have to live with one increase for this year! Markets will want to get a feel for the extend of rate rises to come - I think that will be very important for gold. One or two rises will not hurt that much...and I would be surprised, if we saw much more than this in a world economy, which is still very fragile.

Australian gold stocks have seen a quite dramatic reaction to the very strong performance of the first 7 month this year, which drove valuations to the overvalued territory, generally. But the A$ gold price has fluctuated between 1745 A$/oz and 1770 over the last 3 weeks, and is now trading at 1745 A$ - so hardly moving, while share prices are down by 20-30% from their highs across the board. This does offer opportunities for those, who have missed the boat in the first place.

Stocks like EVN, PRU, RSG, BDR among the producers, and WAF, CDV etc among the developers are all cheapish again now - provided the gold price holds at 1300 US$/oz. All of these companies are cashed up again following strong cash generation, or/and placements - with the only exception of EVN, following an aquisition. 

Evolution - much has been said and written about their aquisition, being a 880 Mill A$ purchase of the gold stream, and 1/3rd of the copper stream of the Ernest Henry Mine from Glencore. I only want to say here, that the purchase has been consistent with their well flagged strategy, to keep 6-8 operating mines, but to improve asset quality via M&A. This is exactly what the company has done - selling the short mine life of Pajingo, and buying the proven 11 years of gold production + copper from Glencore. Depending on your gold price outlook, this auqisition has been made at fait value, if you are reasonably cautious on gold & copper - or at a very low value,. if you are cautiously optimistic, and expect an increase of reserves over time, which is seen generally as a very fair chance. Glencore have spent very little, if anything, on exploration - this will certainly change unter EVN´s guidance. At today´s gold price, and at around 2.20 A$/sahres, EVN are very good value again. Interesting to see, that Jake has put his money where his mouth is in buying additional 2 mill shares in the current capital raising. As a retail investor, you should get notice in a day or two with a chance to subscribe as well, which is strongly recommended, if you are even halfway positive on gold.

Resolute - reported very impressive numbers. The company has put a long history of debt behind itself...the only thing missing is the fantastic transparency of say EVN in reporting. RSG made 27.6ct/share in earnings, ore 213 mill A$, generating a 167 Mill A$ gross profit from operations at an average gold price received of 1624 A$/oz . Having reduced debt by 91 mill A$ in the year, the company now has net cash of 75 mill A$, and is producing about 315.000 oz annually at about 1200 A$ AISC annually. Having Bibiani, Ravenswood Extension, and Syama Underground in the pipeline, production is forecast to grow to about 450.000 oz over the next 3 years - financed by cash as well as very strong cash flow at current gold prices. The company has seen a dramatic turnaround under the relatively new MD, and the inclusion into the ASX 200 will see multiple brokers taking up coverage of the stock.

Beadell - as expected, the first half was a pretty average, having produced only 56.000 ounces - and the stock has had a quiet severe correction from the overvalued mid-fifties to 36ct now. The company is guiding for up to 100.000 oz production in the current half, as Duckhead high grade ore will be processed. The good news is, that AB1 as wella s AB2 will over time also see improved grades, following some very successfull exploration - and a resource/reserve upgrade will also be announced this half. So while I do have some reservations as to the management, I think they are very capable and the stock has been overdone. If you want some more specualtive momentum than you would have in EVN or RSG - this is a good stock to purchase.

The same applies to Perseus - they will continue to be a high cost producer, and will even burn some money in the current half at a gold price of 1300 US$ - but if tehy can stick halfway to their mine plane, the fgirst half of 2017 will see further improvement, before the next financial will generate very solid cash. PRU are probably the best leverage to gold within the Australian, established producers, and hence, I would rather miss the first 10% upside, and wait for gold to tick higher again before committing. But the mix between high costs, and a strongly rising production profile over the next 3-4 years remain very interesting!

West African Resources - announced a surprise placement - probably a little opportunistic and based on very strong demand for the stock. They raised 21 mill A$ very easily and amid a shortage of strong, new stories...resulting in WAF paying back the 5 mill$ Macquarie-loan, and still ending up with about 23.5 mill A$. This is much more than enough to finish the feasibility study ( I guess only 5 mill$ needed at worst ), and to continue an active exploration program.- they might even be able to order some equipment like ball mill for the plant early, once the BFS is out late this year. WAF also announced the maiden ersource for their recently drilled M1 prospect, which had 191.000 oz at 5.1g gold estimated, resulting in an overall resource of 20 millt at 2.14g. The company is clearly on it´s way to a 140-150.000 oz producer.

Cardinal - being the otehr highly successfull, West African developer, they announced some very high grade results in August from infill drilling. - the best ones so far. I see potential for the overall resource getting closer to 1.3g/t from 1.1-1.2g - this sounds small, but 10% grade improvement, if you have a low grade resource, are very important. The overall resource could well be 3 mill oz, and it remains to be seen, what the in-pit resource will look like. It will definitely be smaller - but could also exhibit higher grades than the ones mentioned above. Having a very low strip ratio and a very consistent resource, I think this will definitely be a mine, even at lower gold prices....This one, as well as WAF, has corrected from an over-excited level, is very well cashed up, and looks like good buying here as well.

Panoramic - nobody wants to know, but PAN have recently delivered a sensational resource upgrade for Savannah. The resource of Savannah North now stands at 175.000t at 1.7% Ni, + 74.000t of co and 13.000t of cobalt. The overall resource at Savannah now has 226.000t of Ni, 105.000t of co, and 15.300t of cobalt and is 3.5 times as large as when the projected started production 13 years or so ago. Even more important, the reserve grade of recently stopped production has been 1.35% Ni - raising hopes, that cash costs of production in the feasibility study ( to be announced at about year end 2017 ) could be close to 3 US$/lb! This is a large resource already, and it remains open in 3 directions....Anybody who believes, that nickel one day will trade above 12.000 US$/t or 5.50 US$ on a sustained basis, got to buy some and put in the bottom draw! More details of the proposed IPO of the gold assets should be announced within 6 weeks or so, potentially providing some short term upside.

Highfield - during my absence, HFR announced a MOU with Cargill to market the companies salt . Cargill is a relatively large player in the field, and for them to contract with HFR, would be very good news. A MOU is basically not more than "the intention to do a deal" - but it´s clearly showing solid interest from cargill in the product. Some investors had seen the by-product salt as a negative, as you better get rid of it, before it creates a problem for storage. A firm deal can only be made, once the mine is permitted - and that process remains ion the final stages. There are no questions unanswered- the ball is entirely with the administration in Madrid. The bad news here is, that there is still no government in place, even though a solution has become closer...In the meantime, a merger between Agrium and Potash does create some excitement, and would clearly be good news for the potash market. Both stocks are up strongly, and a merger could indicate the end of the bear market in the fertilizer.

For now, have a nice evening


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