Market Update

General - Berkeley - AAC - Gold stocks

Good afternoon

so - the French did the right thing! Will be interesting to watch politics there - firstly, whether Macron will eventually win, and secondly, whether he will be able to run the country without having a big party behind himself!

Gold is holding up ok so far, while ( surprisingly? ) ETF inflows continue. The US$ received a pounding - this might carry on for a bit, but European problems remain unsolved.

The German IFO Index for business confidence has been very strong yesterday. It looks like we are on a sustainable growth path here in Europe.

The new focus on mineral sands continued yesterday, with Iluka hitting yet another recent high. There could be a substantial amount of short covering involved, as ILU has been a very heavily shorted stock. It will be hurting a few players, and I don´t feel sorry for them!

Berkeley - is continuing to ramp up it´s uranium project in Spain. Cost optmisation is very sucecsfull for this project, which will be a very low cost producer anyway. They have signed a preliminary agreement with a Glencore subsidiary to supply reagent at substantially lower prices than budegeted until 2021 ( reagent costs are about 30% of total operating costs ). Final and "highly competitive" proposals from several reputed mining contractors have been received as well, indicating perhaps further reduced costs, while the first, substantial order for equipment resulted in a 20% cost saving for the crushing circuit vs the Feasibility study. The main question, though, remains offtake/proejct participation/ financing of the mine, which still remains a deal to be done! This will be the major price trigger for the stock, which has come down quite a long way from highs earlier this year, when investors got excited about uranium.

Australian Agricultural - the company reported this years valuation of their property yesterday, coming in 44.3 mill$ higher than last year - a 7% increase, which sounds sensible to me. The stock has recovered about 20% from recent lows, and while I would not buy more at current prices, it´s still trading on the cheap side.

Euroz - the well respected, Perth-based broker and wealth manager is an interesting and probably conservative way to ride the commodity cycle. The profits on the broking side are generally coming from capital markets activity, which naturally is much higher in positive resources markets - and accordingly, had a good last half year. The group has between 116-and 125 mill A$ in cash & investments, hence their broking and wealth business is only valued at around 75 Mill A$. The company has been building a sizeable and growing wealth business, managing more than 1.1 bill A$ now, and growing. Over the enxt few years, I can see this materially contributing to profits - and for now, it´s probably valued at zero. Nearly half of the company is owned by staff, while institutions are controlling only 11% of the stock - this is also growing. Euroz have a very strong history of paying dividends, and I would not be surprised to see y good financial year end div for them ( 5-6ct/share? ) to trade at a total div-yield of 5% or so. Historically, they have paid a div continously since 2007 of up to 27ct/share. Unfortunately, the stock is not very liquid - but with a bit of patience, one can build a position ( 90.000 A$/day is average turnover ). I have been holding  a position for more than a year now.

Gold Stocks - I looked at the real blue chips, Newmont and Barrick - or at least what the market perceives as blue chips. There has been an interesting article in the Mining Journal today, talking about the vanishing reserves of the 10 major gold miners. Their combined reserves fell from 700 mill oz to 500 mill oz since 2012. The main reason for this is the lack of major discoveries for some years now - the otehr one is depletion by production ( I am not sure, but I would imaginne, that some "reserves" have been  lost because of a lower gold price used to calculate them ). In any case - they are falling big time. Furthermore, the article argues, that a fair chunk of these "reserves" will never be produced - Donlin Creek and Pascua-Lama are described as examples. Similary, the old story of these "blue chips" having very long term production, is losing it´s rationale....It´s right for some, but wrong for others - the large Americans have between 11- and 16 years of production left in reserves ( and as seen above, some of these "reserves" will never be produced from! ). 

So what´s the point in investing them? My little Evolution has top management, much lower debt vs EBITDA or assets than all of these guys, growth in reserves/mine life ( even though it´s just above 8 years now and hence, lower still than the large US-names ), and clearly, a much lower valuation:

EVN trades at a market cap of 3 bill US$, for production of 830.000 oz this year, EBITDA of 600 mill US$, Net profit 148 Mill US$ . That is 5x EBITDA / 20x net profit / 3.600 US$/oz of production

Newcrest trades at a market cap of 13.6 bill US$, for production of 2.4 mill oz this year, EBITDA of 1.06 bill US$, net profit of 400 mill US$. That is 13x EBITDA / 30x net profit/5.600 US$/oz of production

Newmont trades at a market cap of 18 bill US$, for production of 5 mill oz, EBITDA of 2,4 bill US$, net profit of 500 mill. That is 7.5x EBITDA / 36x net profit / 3.600 US$/oz production

Barrick trades at a market cap of 22 bill US$, for production of 5.5 mill oz, EBITDA of 4 bill US$, net profit of 1 bill US$. That is 5,8x EBITDA / 23x net profit / 4.200 US$/oz of production

Evolution has lower debt levels than all of the above, lower country risk, lower costs, growth of reserves + production...why not buy them for gold exposure? All of EVN´sproduction is in Australia....not Africa, South America or Papua, as for the other companies ( + North America, certainly )

Have a nice evening