Market Update

General - Strike - Evolution - Beadell - Breaker

Good afternoon

The mood has changed with regards to monetary policy! Mopre and more commentators are questioning the effects of further easing, and headlines about the negative effects of ultra-loose monetary policy are becoming more pronounced, and tend to get more air space. The only question , in my very personal opinion, is just how far this process will bring us back into positive short term interest rates, and by how much this will affect longer dated bonds. I just cannot see the enviroment getting positive enough for economies to be able to handle strongly rising rates...the world is still extremely vulnerable ( and in fact, has probably become more so over the last year or two! ), and will not be able to sustaing a positive growth path, if central banks around the world get back to normal any time soon - and probably, never!

Mrs.Clinton is "feeling incredibly well" while having pneumonia....that tells you something about the treatment of the truth in American politics...anyway, as crazy as this sounds - but it has certainly increased the chances of this man called Trump. If youi believe, that the market is always right, Trump will make it anyway....saw a little piece yesterday, which was charting the amazing performance this year of US-coal stocks, which went absolutely through the roof. Clinton is very much anti-coal mining, while Trump is very much pro....

The A$ gold price is still extremely healthy at around 1765 A$/oz - that´s exactly in line with the average for this Quarter so far, and more than 100$ above the first half average! We should see some very nice cash generation from Aussie producers, once Quarterlies will be announced next month! But the massive re-weighting of Australian institutions into gold stocks is definitely over for now, and hence, stocks are consolidating.

Strike - the MD got the sack on Friday! I very much liked David Wrench, and his sorrow and cautious approach to developing the companies huge gas resource. But it looks like not everybody agreed, especially not the chairman! I understand from talking to several people close to the company, as well as major shareholders, as to management, that Mr.Carnegie has not been happy with the slow progress. also, there might be different opinions as to possible JV´s on STX´s vast acreage. I understand, that David wanted to go it alone. 

The criticism is probably not totally unfounded, even though I very much regret David´s dismissal from a personal standpoint. It has taken much longer than anticipated to prove commerciality of the project - even though I understand, that it takes time to understand specific characteristics of a specific resource, and the best ways to make them flow in an efficient and save manner. One thing is definite: the new management will try to push things very hard, and will probably reap the rewards from David´s work. In terms of making money in the short term, the move will probably turn out to be positive - especially, if the company can do a meaningful JV with a larger company. In the long term, that would probably flatten the potential upside - but that´s something I could live with, if the process speeds up development. I will continue to monitor the situation very closely, given my large shareholding in STX, and will be in contact with the new MD later this week - he just arrived in London today.

Just one thing is really important for now: David reiterated to me, that he believes to have developed the project to a stage, where it´s " at the cusp of commerciality" - so even as he got the sack, he is still very much convinced of the asset and it´s quality!

Evolution - announced some excellent and important drilling results from it´s major project, Cowal yesterday. The results point to an increasing part of the rfesource being within the new pit shell, following the large cut-back, which is most probably goinmg ahead from enxt year now. Given the quality of the drilling, the reserve grade of Cowal looks to be improved as well, making this operation an even better asset for the next 15 years or so. 

Today, EVN released a new presentation for the upcoming, major gold conferences in North America from this week, and updated guidance following the sale of Pajingo, and the purchase of Ernest Henry:

                          Production         AISC

2015/16              803.000 oz       1014 A$/oz

2016/17              800-860.000    900-960 A$/oz

2017/18               820-880.000    840-900 A$/oz

2018/19              830-890.00       830-900 A$/oz

The gradual improvement of the asset quality can be seen - small increases of production, while lowering costs even further to within the best 25% of world production. I would be surprised, if the Americans don´t like this!

Beadell - also with a new presentation, for the same reasons. The company is still very confident of having a great half year - following 56.000oz in the last half year ( they have Dec-year end, contrary to most Australian companies ) , BDR is guiding for 145.-160.000 oz for the full year - and we already have mid-September, so they must see a strong improvement already. Mining rates have substantially improved last Quarter, while the wet season was still on. I would expect further improvement this Quarter, enabling them to increase the portion of mined ore being treated ( vs the amount of low-grade stock pile used ) , which in turn should lead to overall grade improvement. If they achieve production somewhere in the middle of their guidance, grades ex Duckhead will have to rise to about 1.27g/t or 20% higher than last Quarter. I think that should be possible - for as long as they have done the grade drilling properly, as they approach better grades in AB1 and AB2 lodes.

Unfortunately, the companies hasty placement at 19ct soon after the new management took control has been very dilutive, limiting the upside. Still, I think below 40ct and at current gold prices, the stock is worth accumulating again.

Breaker - I am very relieved and happy for Tom Sanders, finally to have some luck! His hard work seems to pay off! He is not there yet - but recently his progress to delineate what could be a very sizeable resource has been very good. Today´s drilling results give me confidence for the first time, that BRB are not only sitting on a viable resource within it´s large land holding, but that they are finding and defining it! The only problem, as usual: Tom has got no money! The company will have to come to the market again quite soon. Anybody, though, who continued to support his vision in the last 3 raisings ( which were all very small! ), have been massively rewarded, and he should not have a big problem to find a few million $ from his shareholders! Still very speculative - but Breaker is looking closer to success than ever!

Fortescue - it starts to get boring: They are paying back another 700 Mill$ of debt! The cash generation of the business is phenomenal at current prices for iron ore, or even lower....Macquarie believes, that FMG will get an investment grade rating from the agencies within 6 month! Fantastic achievement, fantastic management, and making RIO and BHP looking pale in the face!

Have a nice evening for now!


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