Market Update

General - cobalt/Panoramic - West African - Genex Power - A$

Good afternoon

We would like to invite you to our yearly Australian Resources Conference in Zurich, 24th of February, Hotel Baur au Lac. As always, the attending companies are inviting all interested investors and other interested followers. Please pass on the information to your colleagues as well! 

Please register by clicking this link:

Australian Resources Investment Conference

This year, following companies will attend:

Evolution Mining / Perseus Mining / Panoramic Resources / Prairie Mining / Genex Power / Crusader Resources / Breaker Resources / Peak Resources / Finders Resources / Energia Minerals

Market Update

this market is almost a bit hot in the moment...probably needs a breather. Iron ore is trading at a mind-blowing 92,25 US$/t - and freight rates are down, giving another $ to producers. Investors are now looking even at more exotic cobalt, which is trading spot at 19 US$ now! Massive move....I guess Peter Harold will be able to explain to us next week at the conference, what stronger copper- and cobalt prices  could mean to Panoramic´s  nickel project, which will produce meaningful amounts of copper and cobalt as by-product. Do you recall me writing about it, and using a bullish 20$ for cobalt just last week?  Well, we are already there...but my calculations were too bullish....still, strong cobalt prices will be very supportive. He did not want to give me  details, as smelter agreements are confidential.

The market is already talking about gold miners Newcrest, Oceana and Evolution, all of whom have significant amounts of copper as by-product, which will serve these guys greatly to reduce their costs of gold production. One could already see that with EVN´s Ernest Henry Mine  last Quarter, which produced gold at a negative AISC of 114 $/oz - this will be even lower this Quarter, as copper averaged 5284 US$ last Quarter, and so far 5815 US$ for this Quarter - today it´s at 6140 US$t. Theoretically at least, todays copper price will give them an additional 22 Mill A$ or so in revenue. 

Later today, some profit-taking in the metals is showing real reason...probably somebody is taking profits, and you can´t blame him!

In the meantime, Gina Lopez is active again - I have to admit, much to my delight...( oh my god, so opportunistic! )...she is cancelling further mining concessions...Philex, quite a large company, down by 13%...and Indonesia is talking about a 10% export tax for low-grade nickel ore....Supply disruptions in nickel will continue to be with us for quite some time! And in copper, I am sure you ahve read about Escondida, Grasberg ...the two world´s largest copper mine in trouble...

Interesting move by Glencore yesterday...they took out controversial investor Dan Gertler and increased their ( already ) controlling position in two copper/cobalt mines in the DRC. The larger of these two mines alone controls about 20% of the world´s cobal production. The Chinese, who took out Lundin and Freeport, and Glencore now control about 50% of the world´s cobalt production just via those mines. And cobalt is doubled over the last few years, and as we all know, it´s desperatley needed for electrical car batteries. Having said this - there are substitutions for everything, and at one stage, this might hit cobalt. Tesla for example are using about 8kg per car - not too meaningful in terms of total costs of a car, but the security of supply, and where this stuff comes from, are also important considerations. 

Another way to play - or better speculate - is via Ardea Resources,w hich is a spin-off from zinc developer Heron Resources. Ardea controls Australia´s largest cobalt resource, which has a high grade zone containing 50 millt of ore with 0,12% cobalt and 0,86% nickel. Very early days, but still interesting to watch. This is a lateritic orebody, which does not make things any easier. I do not know the stock well - but could be an idea for cobalt-fans!

Still money flowing into the gold ETF´s - despite a relatively strong US$.

One little warning for Aussie mining companies: The A$ is looking like it might be moving trough resistance at 77.50-78ct against the US...that might well lead to some kind of very strong move to 85-90ct....not good for our miners, but the way these commodities are marching, I fear it might be a question of time for this to happen.

West African Resources - they could not come to our conference this year due to time constraints - unfortunately. I still very much like the story. The market seems a bit concerned, that the bankable feasibility study is not out yet - but I believe this to happen within a week or two. I am not expecting any surprises - this will be one of the few, halfway sizeable , new projects on the drawing board. At current gold prices, this will be a very profitable project, thanks to excellent grades and easy metallurgy. Companies, which attended the INDABA last week in Capetown, have told me about substantioal interest from several private equity-type of new funds, all hungry for new projects, and some of them with 1 bill US$+ to spend. Hence I would not even be surprised, if this proejct could be financed without a general equity raising. We have seen the other day in Capricorn, that these PE-investors are not shy of actually paying a premium! I am not saying, that this is happening here - I just want to express, that it might not be all that hard to raise anotehr 50 Mill or so for a smallish company like WFA. Currently, they have 18 mill$ in cash ( as at 31.12. ), and 40 mill 15ct-options, owned by their banker Macquarie Bank, will mature shortly.

Genex Power - today announced the financial close of their Solar project stage 1 for 50 MW. 100 Mill A$ have been sigend up by the Clean Energy Finance Corp ( government ) and Soc Gen. The project remains on track for first production just befor Christmas. Stage 2 feasibility study should be finalised very shortly, potentially increasing the project size to 270 MW. As you know, the real price here is the pumped hydro project, using the old pits of the Kidston Gold Mine. As I reported, Turnbull is now almost daily about security of energy for Australia, and industry is very concerned about power outages. The Liberal government is under big pressure to deliver something...this is a very big story in Australia. GNX have the only advanced project of this type in Australia - more are needed, but 250 MW is quite a large project. I am absolutely amazed, that this stock is trading at 20.5ct...I realise, that the current rights issue has been disappointing, and is pressuring the share price somewhat - but 14:1 is small, and for me, this is a great opportunity to buy a stock, which has been valued at a multiple ( Cannacord has valued them at an unrisked 1.50 - adjusted for the current rights issue, and risked about 64ct ) and  has very significant (you could even call it: desperate ) political backing. I believe, that the chances for GNX are not only high to get a price guarantee for the power, but also direct subsidies as well as cheap funding from the government. An absolute dream constellation! I disclose my personal interest! 

Have a nice evening!


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