Market Update

General - Evolution - Resolute-- Fortescue - Oklo - Sheffield

Good morning - sorry, this should have gone out yesterday - see today´s report at the bottom...

the disappointing performance of gold stocks is a little sursprising to me. I guess some people are taking profits in light of this strong chart resistance at around 1260 US$. The physical, though, is still edging higher - 1252 as I am writing...Personally, I think we might need some consolidation following the recent, strong move - but once we go through 1260 US$/oz, I think we will have a lot of fun again!

Even though fundamentally it should not have an impact, a strong gold sector is always good for sentiment in the general resources space - in so far I am very hopeful, that we can end the current range trading within the next 2 weeks or so. We are currently seeing a classic wave of profit-taking in resources stocks - they have had a great move over the last 12 month, the initial re-weighting of investment protfolios has taken place - but now we need some fresh momentum coming from somewhere. With Trump not making much progress yet on a new tax-system in the States, and none at all on his fantastic infrastructure 1 Trill $ thing, the market is in wait-and-.see mode right now.

World steel production numbers for Feb have been very strong, up by 4.1%. This, alongside with the Chinese closure of many induction furnaces ( which use steel scrap and no iron ore to cook steel ), certainly explaines teh strong iron ore price. Macquarie mentioned the number of an additional 60 millt of iron ore needed on a yearly basis to replace production from steel scrap - Fortescue had mentioned this number 6 weeks ago....

New Home Sales in the US very strong.

Cobalt with yet another high in London...A lot of people do not see that as sustainable - I think it very well might! Speculators seem to hold 6.000t ( of a market of about 110.000 t ) - that´s not crazily much - and Glencore is controlling a commanding share of world mining production. At the same time, demand is growing by 6% p.a. or so, mainly from EV-batteries. I don´t believe, though, that prices will move much higher, as substitution will become a factor.

Evolution - Citi sold 85 mill shares at 2$ today. I have heard two stories: The official one: Egyptian Billionaer Sawiris hedged his position with a collar ( write calls, buy puts ). The unofficial one: He wanted to realise some funds for something else. Not sure about teh second story...( as at Friday, teh second story has been confirmed! )In any case, it´s not positive in my opinion, as such a large option position will increase volatility in both directiosn - when the stock goes down, Citi has to sell more stock - when it goes up, they have to buy more to stay neutral on their hedge. Whatever the technicals - what a great buy for investors at 2$, with the A$ gold price at 1635!

Resolute - came out withs ome very good drilling results from their Bibiani asset in Ghana. They bought that a few years ago in an ill-fated aquisition, but the story finally seems to come halfway right. The recent feasibility study was calling for production of 100.000 oz at 850 US$ AISC, against capex of 72 Mill US$, for a proven 5 years - nothing to get me excited. But the current drilling looks certain to increase reserves , and also grade of existing resources. Some more results like this, and this might actually become a reasonably good mine! Resolute is in a very sound position, having 275 mill A$ in cash & bullion. The company is unusual in holding a lot of  bullion on their balance sheet- as part of their cash management, as they say, which is holding A$, US$ and Euro´s - and now bullion. I do not really like that - but it increases the potential upside, if and when gold moves higher. I am not a holder - but stock is not uninteresting at current levels.

Have a nice day


Good afternoon - Update dated Friday, the 24th:

Eurozone PMI very strong...German manufacturing very strong...US PMI ....Durable Goods Orders strong again as well. Chinese PMI only next Friday - but so far, a pretty good set of numbers!

Heard an interesting and very plausible explanation for the relative weakness of our smaller resources stocks today: Apparently, quite a few Australian small cap managers have seen substantial outflows recently ( usually, these guys have a ex-ASX 100 mandate ), amounting to something like 5 bill A$ over the last few month. The funds seem to be allocated to large-cap funds, and Index funds. That´s a lot of money for the Australian small cap sector, and explains some of the recent reluctance of good stories in the developer-space , to go higher. 

Fortescue - reduced debt by another 1 bill US$ the current iron ore price, will be debt free late this year!This is a money-printing machine! And soon, it will be a dividend-machine, as this is the only way for Andrew Forrest to take money out of the company. 

Oklo Resources - Chalice increased it´s shareholding again to 9% now...From what I am hearing, the company is very excited about what they call a look-alike of early results at Fekola, which was Papillons major gold find in Mali, before they were taken out by B2Gold ( about which I am hearing positive stories ). I have to say, that I find the stock pretty pricy for the early stage of their exploration, but obviously, I am not a geologist! Would certainly be great for the market to have a major gold find here.

Sheffield Resources - published a very positive BFS for their Thunderbird mineral sands project in Western Australia. Mine life of 42 years, pre-tax NPV10 of 676 mill A$ , IRR of 25% could make them a compelling target for Iluka or RIO, both of whom have declining assets in this space, and limited reserves. The project is planned to produce 51.000t of Premium Zircon, 49.000t of Zircon-concentrate, and 264.000t of Ilmenite p.a.. Assumptions used in the study are conservative for Ilmenite, and probably realistic for Zircon. The initial capex of 350 mill A$ is large for a 100 mill$ company - but this is a problem we are all used to, I think. The company is currently in talks with regards to off-take agreements, which could pave the way for a large financing. Interesting story to follow - unfortunately, few people over here are looking at mineral sands. 

Have a nice weekend!