Market Update

General - Nickel - St Barbara

Good afternoon

Core CPI in the US up to 2, Europe it´s rising as well....and the labor market is showing first signs of getting tight, as wages are I said before - inflation might well suprise as a little this year!

How about US$ bonds yielding 2.4%, with inmflation at 2.2% - and even worse, German 10-years trading at 0.34% - and inflation at 1.7%????? Real yield is a very far cry from becoming a problem for the gold price. But bonds will turn out to be the second big surprise this year - the current yields are unsustainably low, especially, if Trump should be able to kick-start the US economy. For me, there is a real chance, that inflation will gradually increase to 3%...that should get some interest into gold - and Yellen will probably continue to be pretty dovish.

Funny enough, and despite all the negative talk around, nickel ist just about the best performer in the base metal space so far today - up by 0.8%, followed by zinc, copper and lead - all slightly green. Macquarie today has downgraded their nickel price forecast by 2000$/t for the next few years. I think that´s fairly bearish, and too conservative, as they also see yearly supply-deficits for the next few years, slowly but surely eating into stocks. And the wildcard anyway will be the impact of financial investors - if they increase commodity investments, the entire sector will go up, as none of the metals is massively oversupplied these days. So on balance - the easíng of the Indonesian export ban is clearly a negative, and will probably limit the upside for nickel - but it still does not make me bearish for nickel.

St Barbara - surprised with an even better Quarter! Last Quarter had been great - this one was even better! Grade is king - that´s certainly true for SBM! Only 200.000 t have bene mined this Quarter, but the grade at 11.9g/t has been exceptional, and has been substantially abover the reserve grade. In so far, these stunning results cannot be extrapolated. AISC were a stunning 716 A$/oz , for nearly 71.000 Oz produced. The company has increased guidance now by 10.000 oz to 255-265.000oz for the financial year - implying 117-127.000 oz for the half. To a degree, this might just be conservative - but it also shows, that the company does not see these very high grades as sustainable. Just two years ago, the company was on the brink of bancrupcy - now they are in 31 mill net cash + 22 in bullion...and cash generation is 200 millA$+ p.a.. The second operation, Simberi, continues to be a high cost operation with limited mine life, and did not generate any free cash in the Quarter. Unless they have exploration success, I value it a very little!  SBM have done fantastic job operationally ( the mine is 1600m deep!! ) - but I think they will only perform in line with the gold price.

have a nice evening


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