Market Update

General - Foran - Perseus - Prairie - Fortescue - Tiger

Good afternoon

A very valued  reader has complained to me about writing too much about Trump...and I guess he is right. But to my defense, I want to point out, that political developments are somewhat important to gold especially....and I firmly believe, that he has substantially increased political risks for all of us. I will try to refrain a least once in a while!

Plenty of action...Euro pretty weak..and could be on it´s way to parity against the US! I guess this might well happen, looking at the elections chedule coming up this year: rassist/nationalistic parties strong in France + Netherlands, potentially upsetting Euroland...and a much more left social democratic party than in more recent times gaining the upper hand in the polls to Merkel recently in Germany ( elections in Sept ), while Italy is still looking pretty f....ed!

And the Aussie is strong against the US itself, resulting in a chart break of Aussi/Euro, which is now on it´s way to regions not seen since the "great commodity boom" 5 years ago. If we assume a strong US$, and an even stronger A$ ( at current prices, Australia will be exporting 100 bill A$ worth of iron ore this year! ), the chart target of 1.20 against the Euro from the current 1.36 does not seem so much out of this world! 

Russia bought another 31t of gold last month...

European CPI up by 1.8%, as expected - partially driven by energy/oil. This is the strongest number since late 2012. German IFO-Institue survey for Business Confidence very strong.

Steel production around the world is pretty strong, alongside strong manufacturing - picking up strongly in the US. and China is seriously thinking of imposing coal-production curbs again, which would see a rebound of coking coal as well as thermal coal prices...The resources sector is very sexy indeed, and especially the big boys will continue to benefit. At the same time, all of them are showing constraint in capex - so no new projects, but higherr prices = massive cash flow = very strong dividends. 

Metals as well as gold are actually performing pretty well today ( largely unchanged ), in light of a strong US$. 

Fortescue - the theme of strong div´s was exhibited by them as well today: Better than expected result, massive increase in divdends ...and more to come, as the company would be completely debt free at current iron ore prices in 6 month time...from 13 bill US$ just a few years ago!!! And management interest is firmly aligned here with shareholders, as Andrew Forrest still owns more than 30% of the company and the only way to realise some cash out of the company is a massive pay-out to all shareholders. Not hard to see 40ct div this year - implying a nice and tidy ( and well deserved ) 400 mill$ pay-cheque to Andrew!! FMG expects the iron ore price to "moderate", and might look at aquiring coking coal assets, which would be complementary for their marketing, as the consumers are identical. The company is also generally looking for the next big thing - they have also aquired some copper/gold ground recently in Ecuador.

Goldmans only see further strength in commodities on more tangible progress on demand, reduced stock levels etc ( they do expect this for the 2.nd Quarter )...I can understand them, and I also believe, that we need some consolidation - but we have already seen much evidence , in my opinion, for increasing demand. 

Independence Gold reported a very unexpected delay in production ramp-up of their Nova Nickel Deposit...the reason for it is interesting: The underground contractor has problems in getting enough staff! This could be an indication of the labor market in Western Australia being much tighter than thought, and a precursor for rising labor costs for the mining sector. I think costs of Australian miners are generally probably past the best ( = the lowest! ), as the A$ is rising, and oil price is up as well and seems to be holding. It won´t be easy for Aussie miners to hold costs....That´s a clear negative for my sector, I fear.

Tiger Resources - the desaster has been going on for some time now...all sort of technical problems, and production has been very weak - only 1.500t in Jan. Stock is suspended and is talking to it´s creditors...I am pretty sure, that they are etchnically bust, but major shareholders and I believe also creditors RCF and Taurus, two very well respected names in the industry, will probably keep them alive. TGS are one more name adding to a shortfall in copper production - no big number, perhaps 20.000t less than planned - but it all adds up, while Feeport and Escondida-problems have not gone away as yet!

Foran Mining - are starting their first drill hole to test a relatively deep , but very strong conductor. If they hit the right stuff here and can prove, that there is much upside to the resource, it will make it even sexier for the Glencore´s and Hudson bay´s of this world. A recent analyst study has valued the stock at 1.18 Can$, which in my opinion - and looking at the PEA - is a conservative target! The stock is one of my largest investments in the fund.

Prairie Mining - came out with a very positive update of their scoping study today. Total expenditure for upgrading power, road, water and rail is planned to be 9.4 mill US$. Power will be supplied at a price of 6.8 USct/Kwh for up to 30 MW - that´s very cheap, and power line already exists. For a mine this size, I would say infrstructure expenditure of several hundred mill $ would not be that unusual. The scoping study will be released within a " few weeks" - I´s say around the end of March, but definitely in time for the next Quarterly Report. I think the market is still cautious on this one, as Australian investors are not very much used to Poland - and the time table will only see production of one or both mines within several years. But both projects alone could be worth a few times the current share price on their own. So you need some patience to make serious money here - but in the meantime, I do expect a gradual increase of the companies valuation. I am holding a reasonable significant position here as well. In today´s announcement, they are talking about a relatively fast track to I am very curious to see some more evidence of this at our conference on Friday, or latest from the scoping study....

Perseus - have updated the Life-Of-Mine plan for the remaining 6.5 years of mine life. Production will be 240.000 oz p.a. for 5 years starting 1st of July, at an average of 875 US$ All-in site costs ( that incl all stripping, royalties, sustaining capex etc , only coprorate headoffice costs not included as well as financing costs , should they occure ) sound like a great plan, delivering cash flow after tax of 403 mill US$ or 523 mill A$ at todays currency and at 1200 US$/oz, vs a market cap of 335 Mill A$ ( and 50 mill or so in cash ). Effectively, the stock is priced at only Edikan, not paying anything for Yaoure at all. Obviously, the stock has a credibility problem, following the grade problems at Edikan, and the negative announcement back in November. I think this is overdone - but one has to accept it and work at it! Jeff Quartermaine will update us this Friday in Zurich.

have a good day!



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