Market Update

General - Breaker - Paringa/Prairie - Oceana - Genex

Good afternoon

OPEC wants higher prices...and well, they don´t exactly know at this stage, which country will be cutting...and obviously, this is the crucual point! But my feeling is, that the fact, that saudi´s and Iranian´s have found some kind of agreement, is very important. This could be a major change...and it could also mark the low point of inflation...and interest rates!

A bit early perhaps to actually move in terms of asset allocation...but we are getting very close to a major turning point.

Metals are having a strong day...nickel being teh strongest, after being sold off quite heavily yesterday. 

Everybody is speculation about the size of production cut especially in nickel ore, following the government audit. I think we should note two points: For one, this government is completely irrational, and anything is possible. In any case, they are very hostile towards mining and follow the history in the country of having very strong anti-mining NGO´s, and a catholic church. For two, whatever mines will be closed - I think it´s on the horizon, that costs of production will go up. Whether thats because of higher taxes, higher royalties, or stricter enviromental controls - in any case, they will go up. And that´s a major positive for Australian nickel stocks, as it puts upward pressure on the cost of producing nickel pig iron in China, which is based on ore imports from the Phillippines. In my view, the nickel prices will hit 12.000$/t before year end. Not to disregard: thermal coal is making a ne whigh today - I think it´s a two-year high - while zinc and lead are strong, too - making 8-year highs in A$ terms...Copper at it´s best in 8 weeks...

Diamond prices have gradually edged higher for most of the year, according to Bloomberg. But with an important twist: Demand for the quality end has increased, while the price of mass-market stones has actually fallen by 10-15%. So you should look at the kind of stuff your investments are producing...

Oceana Gold - Mick Wilkes, the excellent MD of Oceana, has been pretty outspoken in an interview in Manila. He is 100% correct, when he is criticising the actions against mining in the country - but I think it´s not smart to publicly and harshly criticism of irrational ministers....These things can backfire...I would much prefer to work behind closed doors....The trouble in that country will persist, and for now, I would not touch any mining stocks with operations there...

Breaker - had a phenomenal come-back after being suspended for the placement....The company has had a tough time to raise 1 mill$ a few month ago at 13 ct ( for memory ) - this time, a 10 mill$ placement got increased to 12.5 Mill$ at a price of 50ct - 4x oversubscribed - and the stock traded as high as 75ct yesterday! There are not many quality stories around, and the few are getting chased up by institutional investors! IF Tom Sanders can fill up the gap between his two discoveries with more intersections, this one could have much fun in store, still - but it´s pretty hot!

Genex - you cannot imagine, just how much fun I am having with this one! I have been the lonely buyer of thios stock for weeks - and it does not feel any good to be more or less the only buyer of halfway size in a stock!! Anyway - finally and long last, teh Australian market is now taking note of it, and just a bit of buying drove the stock ro the new level of 25ct. At this price, the solar project is fully valued - but the deasibility study for the hydro pump project should be out soon. I cannot value it at all in the moment - I have too little experience with this kind of project - but you are not paying anything for it anyway! It could be worth a multiple of teh solar project - we will find out - and you should still buy some stock, as it´s very nice to get an option for free!

Prairie Mining and Paringa - two very different stocks, but both will be producing coal for power stations. I have written often about them....Prairie is coal in Poland, imemdiately adjacent to Bogdanka, a large mine. Anything but a takeover of PDZ by these guys does not make any sense...but the timing is very uncertain. This is a very good project in it´s own right - but production would be a long way and substantial capex away from here. Still, the stock is very undervalued....Paringa is a different preposition. Belonging also to the Middlemas-stable of companies, they have a great project, but way smaller than PDZ - but only 18-24 month from production, with very small  capex. US coal stocks like Alliance Resource Partners, which is producing in the neighbourhood, and coal with very similar characteristics and the same clients for it, at similar cost of production, have the financial muscle to take out these guys very easily....In my opinion, they should definitely do so, to protect their own back-yard, by increasing profits at the same time....This is pure speculation on my side - but by buying these two companies, I think you will see solid returns over the next 12 month. The price of Alliance has more than doubled over the last few month!

Have a nice weekend


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