Market Update

General - Paringa - Kingsgate - Finders - Oceana

Good afternoon

For the first time in years, China actually increased the ( debt-driven ) growth-rate to 6,7% in the last Quarter. Retail Sales up by 10.9% have been the main driver, but Industrial Production at 6.0% and Fixed Asset Investment at 8.1% ( the metal-intensive contributors to growth ) have been positive as well. 

Surprisingly, metals are trading weaker across the board - probably some profit-taking ahead of the inauguration of this US-lunatic, and ahead of the weekend. This is despite a slightly weaker US$. Gold is still fighting with 1200 US$....

More talk about aquisitions in the Australian gold mining sector. St Barbara, Northern Star, Resolute are all actively seeking aquisitions - but there is also a shortage of sizeable targets. Dacian keeps on being mentioend - but tehy are not dirt-cheap, as is West African Resources ( Resolute are being mentioned here, as well as B2Gold, who have a nice gold asset very close by ).

Kingsgate - reported about their last month of gold production at Chatree, which after 15 or 16 years of operation did not have it´s operating license renewed ( for probably scandalous reasons! ). Productionw as a very strong 19.300 Oz - costs for the Quarter will be reported as part of the Quarterly Report soon. In any case, the company is now debt free, with about 38 mill A$ in cash. Market cap today is 62.6 mill A$ - that´s cheap, taking into account the Chilean silver asset, which probably will need slightly better silver prices to get off the ground. Last but by no means least, tehy still own the plant in Chatree - and that´s a large and good plant. It´s not too hard to see scenarios, under which Kingsgate could be worth double the market cap....The only - and significant - caveat: The Australian, institutional market just hates the chairman! If Ross shoudl decide to make way after something like 15 years at the top, the stock would bounce. I think KCN are a good investment at current levels. I still do not own any - but I continue to think about it!

Finders Resources - restructured their financing, following the placement a few month ago. Their subsidiary is now 73.5% owned ( from 72 % ), total debt of it is 91 Mill US$, which is to be paid back over 3 years. Hedging requirement is 6.500t p.a. over the three years, so roughly 20-25% of production - not too bad. Costs will be interesting to see, once the Quarterly comes out. As I said yesterday - stock is cheap, and very cheap, if you believe ( like I do ), that copper will go back to 3$/lb over the next 3 years.

Oceana - their newest mine, the Haile Mine in the US, poured it´s first gold bar. The plant will now progressively be comissioned and ramped up. This is a large part of the de-risking process, and being located in the US, this will be a highly rated asset.  OGC are well managed, and are de-risking themselves from country risk in the Phillippines. 

Paringa - the stock is making new highs - and is still looking cheap! I understand, that permitting for their US coal mine might actually be coming through in February - that´s a few month earlier than I was expecting, and would be nice surprise. Also soon, expect a resource update to more than 50 millt, and an update of the feasibility study not later than March - incorporating Seam No.11, which had not been included in teh first study, as it has not been known then! That is all very good news in a rising coal price enviroment, and a new president ( oh my god, I find it hard calling him that!! ) pushing the coal industry. Analysts are valuing the stock at 85ct to 1.10 A$/share - that is without seam No.11, which should be material, and with large discounts applied to their potential second mine in the area. Given the news-flow over the enxt few month, the positive enviroment, the excellent and proven management and the large discount to potential valuations, I am very happy to recommend to buy the stock. having said this, I have sold a few today - but this is entirely due to risk management and my large position in the stock.

I will have to finish this early today - will have to go horse riding with my girls in the afternoon, freezing my a..e off! Enjoy the weekend!


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