Market Update

General - Evolution - Resolute - Northern Star - Highfield

Good afternoon

metals finished extremely strong yesterday - but some profit-taking around today! No apparent reason for this - I think metals have had a great run, recently, and there is some profit-taking around. I fear it´s notable, that nickel has not had the recovery the other metals have seen...

Equities are very strong indeed..again, not really sure...perhaps a belated reaction to relatively strong economic numbers around the world? Or just a lack of alternatives in light of weakening bond markets?

Gold has come under pressure late yesterday, as the US gold ETF has seen some 100.000oz leaving the fund, reversing the recent trend. It´s also under a bit of pressure from very positive sentiment today for equities - I do not believe, that rising interest rates are a threat to the gold price yet, as real yields ate still either negative, or dismally low.

Lots of speculation surrounding possible strike action at Escondida. Union demands and company offer are a mile apart - the union is recommending strike to it´s members. As you will know, Escondida is the largest copper producer worldwide, and wage negotiations there set the wage for about 15 other mines in Chile.

German 10year bonds are trading at the highest yield ( 0,46%  vs last years low of - 0,17% ) in 12 month.

German Business Confidence deteriorates from a 3-year high - some fear of trade sanctions or Trump doing something else stupid!

Evolution Mining - an excellent Quarter from my favourite gold miner! Record production of 217.800 oz at AISC of 900 A$! Neadless to say, that tehy "comfoartably" achieve guidance for the full year 2016/2017, as usual! Record production at the largest mine, Cowal, at 815 A$ AISC; stunningly low costs at Mt Carlton of AISC of 604 A$ have been the highlight on production, while Edna May continues to struggle. Exploration at Cowal delivers again, and while the feasibility study for a large cut-back is not finished as yet, management expressed confidence in an extension of mine life to 2032!!! Ernest Henry contributing as well, and big time. The mine is not operated by EVN - but they bought the gold production, and part of the copper as well. The mine produced only 14.200oz - but at a negative ASIC of 114 A$/oz, after by-product credits from copper!! Due to the nature of the transaction, EVN receives payment for copper more or less immediately, while gold revenue is being received in the following Quarter. This means, that an additional 23 Mill A$ from last Quarters production will be received in the current Quarter - and EVN only had access to the cash flow from 1.11.2017, i.e. just 2 month in the Quarter. Company is extremely happy about Ernest Henry - and a rising copper price could drive costs of gold production even lower. Ernest Henry has a mine life of at least 11 years.

Evolution has proven now for several years, to be Australia´s most reliable gold producer, and now a very low cost producer by world standards - I think they deserve a premium for that and have further upside at the current gold price! The company looks capable of generating 400 mill A$ in free cash p.a. before tax at current gold price.

Northern Star - this has been the other star performer of recent years, and you can see the difference: A reasonable Quarter, but you can see them struggling to continue with good, free cash generation. Their mines are just not that fantastic, and analysts are struggling to justify the current valuation. Mine life got to be a question mark, even though they have proven to be strong brownfield-explorers. The company continues to trade like having a 10 years mine life - but proven mine life is just 4 years at best....These comments might not be paying credit to the excellent management of the company, which would  not be fair - but the asset-quality is just not nearly as good as EVN´s - so very hard work! I would be rather cautious of NST - the valuation includes many IF`s!

Resolute - at first glance, a good Quarter from Syama, at least on the cost side - but at second glance you will find, that mill feed was coming from stockpiles, which greatly reduces the costs. Mill throughput and recovery were actually sub-par - and the company warns, that volatility in recovery rates will continue, while stockpiles are being treated. They also warn on lower grades this Quarter for the Australian operations. Resolute are not a bad story, either - and following the placement last year at nearly 2$, their balance sheet is more than healthy with about 250 mill A$ in net cash. But I reckon in the longer term, they could do with the aquisition of a low-cost producer, to employ their cash....

Highfield Resources - as expected, their Quarterly was meaningless...everybody waiting for mine approval, and since March 2016! The ministry has contacted all relevant bodies for somemnts some time ago - all cam abck with questions etc before Christmas. HFR then received a list of questions back - none of which were new, or worrying. HFR have three month to anywer, but will be a lot faster than that - I expect them to answer everything in detail by mid-February. This should be the very very very last step in the approval process....but given the problems with the Spanish bureaucracy, nobody would want to commit to some timing. I am still very long the stock, as I believe, that business and common sense will prevail in a country with massive unemployment. HFR have a great project, and interest in potash production is rising again, as can be seen in the great performance of Potash Corp, or Kali+Salz in recent times....One day we will wake up, and HFR have received the all-important letter - but I admit, that waiting is a terrible game!


Have a nice evening




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