Market Update

General - Index Changes - Middle Island - Kingsgate - Peak - Pilbara - Evolution

Good afternoon

since yesterday´s report got buried in technical deficiencies of the author, a bit more stuff today...

base metals are getting a very unwelcome, two-day hammering...the same fate happening to the US$ against Euro, European equites...

So - what´s causing this??? A few things coming together...Chinese 10-year bonds are approaching 4% yield ( well, with growth of 6.5%, not that bad, is it?? ), high yield bonds showing some cracks, and the market ahs been a bit disappointed by yesterday´s Chinese numbers: Retail Sales +10% vs exp 10.5%; FAI up by 7,3% as expected; Industrial Production + 6,2% vs 6.3% expected.....really, not that negative! At the same time Xi is targeting quality growth, as opposed to quantity...well, I am not that worried! The Euro has been very strong since the GDP-numbers for Germany got published as +0,8% last Quarter vs expected 0.6% ( the A$ in fact is making new, recent lows against the US! ), and I am dead-sure, that quality growth in China does not imply something like 4% or so....Markets have been very strong in equities around the world, and very strong in the metals this year - so I think all the above have just given investors some reason to be a little cautious and take some chips off the table. I hope, that I am right here! As the day progresses, metal prices are also recovering now from the day´s lows - some are already green again on my screen!

Airbus gets the largest order ever for 50 bill US$ worth of planes...

Tencent delivers a stunningly good result

Mugabe seems to be a story of the past... a lot of people will be very happy with that!! The old bastard tried to install his wife - that apparently was too much for the military to bear, and they took control. Let´s hope, that this is not just one bad gang throwing out the old bad gang! I guess chances for this are pretty high, though!

Freeport in real trouble, as it Grasberg, a police officer got killed, anotehr injured on Wednesday - yesterday, a company driver got hurt - all by separists. The road got closed, the mine  - so far - is operating as normal. Like Kingsgate - a messy story gets messier! If you have the time, do what I did yesterday - have a look at youtube,     This takes 50 min - but fascinating indeed for mining-lovers! About the history of the Grasberg Mine ....

Index Changes - Pilbara Mines as well as Lynas are widely tipped to be included in the ASX 200 on next review in December....LYC has already been announced as new member of the MSCI. Especially the latter will add quite a bit of buying.

Middle Island - reported an interesting drilling result: 508m wit 1.38g gold/t, incl 160m with 2.3g. Previous drilling had delivered similar results. The mineralised system measures now 250m of strike, up to 90m of width, and at least 700m in depth - that is pretty substantial and could yield 1.5 mill oz. The resource could well be amenable to sub-level cave mining - the future will tell. The company had previously done some metallurgical work, resulting in recoveries of 93%. I am not sure, whether I would rush out and buy the stock - but for me as a holder, this is pretty good news in light of only 12 mill$ market cap, and an A$ gold price not far away from all-time highs!

Kingsgate - the new , major shareholder Metal Tiger, a small, LOndon-listed mining investor, has made demands for an AGM to be called, to replace the current Chairman, Ross Smyth-Kirk, and two other directors, and to install three metal Tiger representatives on KCN´s board. While I can understand investors, who are not happy with the last few years at KCN, this would be sort of a takeover by somebody, who has just 6,7% of Kingsgate....strange. Could this potentially replace a board, which has not been all that great, with a board comprised of investors with their own agenda??? I will make more enquiries and will report my view later...there is no hurry to act, as the Extraordinary General Meeting will be at least 1 montha way. One thing is for sure - a messy story gets messier!!

Peak Resources - the interim CEO, Rocky Smith, got appointed as CEO now. He is the previous Managing Director of Molycorp´s Mountain Pass operations and is one of the few, western mangers to have run a rare Earth operation. As you know, the situation in Tanzania is not easy - but some progress has already been instigated, and I think there might be some light at the end of the tunnel, enabling some serious investment in the country, once again. 

Pilbara Mines - had a longer chat to the company today, as there are some very different forecasts out there. For sure is following: The company will start production in the second Quarter calendar 2018, and should need about 6 month to ramp up to full production of roughly 350.000t of spodumene ( that is lithium concentrate with 6% content ). The company has no bank debt, only bonds, and should have about 30 mill$ in cash left, once in production. That should provide for any potential comissioning problems, which I do not expect to occur anyway. Some time within the next 6 month, the company shoudl also be able to make a decision re Stage 2 of the project, for which substantial off-take agreements already exist, including financing agreements with those off-takers for an aggregate of 100 mill$. Stage 2 should cost about 130 mill$ - so with a positive decision to go ahead, the financing is almost secured. While banks have so far been relatively reluctant to lend to lithium projects, the fact, that the sector is rapidly maturing, should change this. A few days ago, PLS have also announced a MOU with South Korean major LG Chem for a potential 300.000t pa JV to produce Lithium Hydroxide, which is the material needed by battery producers ( by the way, approx 7.5 t spodumene are needed for 1t of lithium hydroxide ). This JV would take basically what might be left over in available production of Stage 2 ( total production planned at Stage 2 is approx 500.000t of spodumene p.a. ). Just by doing back-on-the-envelope numbers on Stage 1 + Stage 2-production of a minimum of 800.000t p.a. of spodumene at a conservative AISC of 300 US$/t and a current price of 800-900US$/t for spodumene, gives you potential cash generation of a minimum of 500 US$/t. Multiply this with 800.000t, and potential cash generation in say calendar year 2020 could be 400 mill US$.....This stock is still not expensive at all!! Worth having a very good look at it!

Evolution Mining - and as we are doing back-on-the-envelope calculations.....Good old Evolution is generating about a 900A$ margin of gold price vs AISC.....even adding 100$ for development capital, the margin should still be 800A$ at the mine 750-800.000oz of yearly production for the enxt few years , that adds up to a very nice 600 mill A$ at the mine gate - that is pre headoffice ( 30 mill? ), exploration ( 50 mill?), debt-servicing and dividends. So before debt and div, the company should ahve free cash of 520 mill A$ .....that´s massive....and as there are not that many aquisition targets around, dividends could become a real joy for EVN´s shareholders !!

Have a nice evening!


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