Market Update

Itinery Resources Conference - General - West African - Paringa - Peak - Perseus

Good afternoon

Big week coming up for us with our 16th Australian Resources Conference in Zurich. It´s always one of our yearly highlights to meet up with a bunch of great guys and hear about their companies prospects. Here is the itinerary for the day, which starts at 9 am and should be finished by 3 pm ( please scroll down a little , once you have clicked on this link ):


Market Update

I am getting very seriously worried about the Trump administration. I think I have never ever seen as contrasting, diffus and completely disharmonised comments out of a new government - perhaps except for the Phillippines.....!!!This will end in desaster - the only question being, whether it´s just desaster for Trump, for the American democracy, or for all of us! And I can only repeat: I am amazed, that gold is still trading so low, and world equity markets so high!

Metals are trading very strongly in London today....Freeport still in strife, Escondida as well - Citibank, which has the top rated commodities research team, publishes a very bullish paper on copper. They are calling it to 7.000 US$ this year, and hitting 8.000 US$t before 2020, based on a supply deficit this year, and increasing deficits thereafter. This will be music to many stocks I am monitoring - starting with Finders, to Panoramic ( more than 35% of total revenue is from copper + cobalt - which is trading at 21.50 US$ today!! ) to Foran Mining ( nearly as much copper by value as zinc production ), to speculative stocks like Caravel Minerals ( like an option on copper ), Venturex or some top-quality gold producers like Evolution, having sizeable exposure via the Ernest Henry mine.

You cal almost feel, that the market is now warming up to  smaller stocks...Finders has managed to stay at the year high despite a large shareholder selling,/ Panoramic is holding at chart resistance level after trippling over the last 12 month / Foran exploding on Friday and moving swiftly through resistance level. There is more fun in store for anyone of the above names, I think! As you know, I am holding all of the above stocks.

West African Resources - well, that was not that much fun today! The feasibility study was in line with what one could seriously expect - but the market has not been that happy with it! The pre-tax NPV5% of the project stands at 143 Mill US$ = 189 Mill A$, IRR of 27%, on capx of 131 Mill US$. AISC first 3 years 705 US$/oz, 759 US$/oz over the mine life. Pay Back of 2 years. All this on 894.000 oz in probable reserves, and producing 150.000 p.a. over the first three years. The main point here is: The company will convert the inferred resources to probable reserves to get them into the mine plan, and is working on plans to have the M1 deposit ( hosting the high grade part of the resource ) going underground much earlier than currently planned ( the current scenario has very high mining costs because of very high stripping ratio ). All of this is not really such a big surprise - but I can understand the criticism of some, that the company have gone into a bankable feasibility study too early and before finishing the exploration- as well as planning work. But I guess we all know better in hindsight, and small companies are certainly always under pressure to release findings as soon as possible. 

The above measures can easily increase the NPV by 80 Mill US$ or so....and this is before further exploration success ( except for converting the inferred resource ). 17 mill  cash + about 6.5 mill$ from options, maturing in August and owned by macquarie Bank. This is much more than needed for drilling out the project - I would say something like 5 mill$ - and further planning on the underground mine ( I´d say about 1.5 mill $ ). This leaves them with a lot of spare cash to drive reginonal exploration. I firmly believe, that todays weakness represents a great buing opportunity for the stock.

Perseus - announced the upgraded, indicated resource for the Bele deposit, 40 km from the Siisingue deposit. It came out at 1.9 millt at 2g for 130.000 oz, plus another 25.000 oz in inferred resources. This is less than the previously announced, inferred resource, but at better grades, and brings the total Sissingue M&I resource of the Sissingue project to 830.000 oz. This is just 50.000oz less than the original resource, before it was downgraded in a disppointing announcement in November.

The additional resource will make financing of the project a lot easier, and should make Sissingue a robust development at current gold prices. Nevertheless, I believe that the  market had hoped for a slightly larger resource. It will be important to see, whether their bankers, Macquarie, are happy enough with it to progress the financing, as this decision could decide on whether PRU will need some more equity. In absence of another issue, I think PRU are pretty cheap down here!

Paringa - announced the resource for the additional coal seam No.11 at their planned Poplar Mine in Kentucky today. It came out at 62 Millt, nearly doubling the existing resource. The coal quality is very similar: very high energy content, low ash and low chlorine, but higher sulphur content vs the original No.9 seam. This resource will now form the basis of the feasibility study, which should be announced within the next 2 month. 

This project has become a better one for quite a few Quarters now, as witnessed in the shareprice of PNL, which I believe is far from being expensive. I am expecting the revised feasibility study ( incorporating seam No.11 ) to come out at higher capex, but larger production and a significantly improved NPV. Limited risk + limited upside - well, if you call 50% + ove rthe next 12 month or so "limited". I still believe, that Alliance, as the largest producer in the area, has to be very tempted to take this upcoming competitor out, which would be valuation-positive for Alliance , for as long as they do not bid a crazy price.

Peak Resources - announced some more exciting exploration results today, discovering more fluorite. It´s early days as yet, but it seems, that PEK could have a sizeable resource here, adding to one of the worlds largest rare earth deposits under development. Fluorite is mainly used in the smelting industry, costs about 260 US$/t and is classified as a Critical Raw Material by the European Union. About 50% of world production is currently based in China. This could turn out to be a sizeable adjunct to PEK´s rare earth deposit in the same area. Just in time for our conference , PEK are trading at a three-year high, which respresents some formidable chart resistance as well., Once gone through the current 10ct-level, the stock could double again on the charts. Fundamentally , this could easily be justified, if prices for Praesodynium and Neodynium go anywhere close to where I expect them to  in 12 month time, driven by electrical motors in cars and wind turbines. 

One word to finish: You might have seen the crazy move up by cobalt from 21.000$/t to 47.500 US$/t today in just 12 month. This has been coming for a long time, in my opinion. It´s backed by very strong fundamentals, but the recent price spike undoubtedly has been driven by hedge funds bidding up a very small market. I have very little doubt, that the same could happen to rare earth prices anytime soon - and probably rather sooner than later. There are many similarities between cobalt and rare earth, and most importantly, the great demand outlook. Once this starts, we could have a lot of fun to come in PEK, which at current prices, probably does not have a project - but could find itself very quickly as owning a strategic resource! Again, I want to state, that I am a relatively large shareholder via my fund, and might even sell a few here and there for risk.-management purposes.

Have a quiet evening, as the US and Canada are closed today!


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