Market Update

General - A$ gold at 1700!! - Northern Star - Newcrest - Lynas - Sandfire

Good afternoon

Trump´s tax plans, while per se being positive for equities due to the planned cut in corporate tax rate, are seen to lack detail - not to talk about the problems in getting those plans through....and to get them financed somehow. So markets are a little disppointed today - not really unexpected, though! In any case - Trump´s honey moon is over.

Economic confidence in Europe at it´s highest in 10 years....but Durable Goods orders in the USA weaker than expected. Still positive, though, and previous month numbers were upgraded.

Equities are seeing some profit-taking today, after recent strong gains. The fabulous 4 in the States are all trading at all-time highs, or just about, while metals are having another uninspired day. Economic numbers are good enough - but not good enough to get some fresh momentum going. Even copper did not really manage to profit from recent production downgrades of BHP and RIO, which are now planning to produce a combined 300-400.000 less copper this year than previously stated. That´s a lot in 23 millt market, which is close to supply-demand balance.

I just want to reiterate, that the A$ gold price is actually at 1700 A$/oz - great level for all serious producers in Australia, and 90& higher than the average of last Quarter!!

Northern Star - a good Quarterly from them, producing 72 mill A$ in cash, after continuing to spend heavily on exploration. AISC were a respectable 1044 A$/oz, for 132.500 oz produced - the company is on track to achieve guidance. Bill Beamont certainly has his house in order - he has clearly rejuvenated his old mines, and is spending heavily on exploration to rectify his main problem: limited mine life. A new resource/rserve statement will be issued in August. If he manages a substantial improvement after mine depletion, I will reconsider my cautious approach.

Sandfire - a good Quarterly from them....copper/gold production about in line with expectations, cash costs just below 1$/lb. At current copper price, the company is producing 200-250 mill$ in free cash p.a, and offers conservative exposure to copper, with 90 mill$ in the bank and no debt. I have only two reservations: I have never really liekd the MD - a bit of a cowboy, in my opinion - and since finding theri great Degrussa mine several years ago, tehy have never been able to do anything significant since. They have found a small mine called Monty nearby - but that is not fully owned, and has 90.000t of copper. At least they should take out the JV partner there, and fully explore this deposit. With an increasing cash pile, I am sure the pressure will rise to aquire something...and here come my concerns as to the MD being teh right man to do so. If I would hold the stock, I would keep it...but there is no urgency to buy SFR. For traders, it´s probably a good buy just below todays level.

Newcrest - interesting Quarterly from Australia´s largest gold miner ( you know which one I think is the best! ). Overall, the Quarterly was good - but could have been better, if not for  weak production from Telfer, which was quite heavily impacted by record rain in January. In light of this, the Quarterly was actually very positive. But close to the end of the Quarter, Cadia got hit my a seismic event, which has been responsible for mor damage than initially thought. The first cave will only be in production again early in the July Quarter, while the second cave has substantial damage - to me, this sound like a potential disruption of 6 month or so. The company has not given a time frame. Cadia is Newcrests most important operation - and if one would want to be cynical, one could argue, that where has been a large seismic event, another one could happen. It certainly increases the risk-profile of Newcrest. Furthermore, there is a pretty negative small statement in the Quarterly with regards to electricity costs for Cadia. Due to the massive, Australian problems in the power market, the new power price as contracted by Newcrest for the full financial year to June 2018, will increase AISC for Cadia by 40-45 US$/oz! That´s massive indeed! The absolute costs increase will certainly depend on how much electricity Cadia will actually need in light of the seismic event. All in all - not good!"

Lynas Corp - interesting for followers of rare earth! Operationally, the best Quarter ever - record production of 1350t of NdPr, which is by far the most important product, and prices are slowly but surely increasing! Operational profit of 11 mill A$ in the Quarter. The operation has operated above name plate for the first time on a quarterly basis. I am ssuming strongly rising prices for rare earth over the next few/many years - China is increasingly clamping down on enviromentally damaging operations, and many rare earth producers are certainly very damaging! And so far at least, every electric car except for the ones produced by Tesla is using an engine, which need magnets = rare earth - no way around it, at least so far! Lynas is still the only producer of rare earth in the western world of any significance, the other large, potential producer is Peak Resources with it´s Namibian project, and the old mine Mountain Pass in California, which has ceased production in 2015 because of bancrupcy, but could be revived by a JV consisting of Peak/ERP/ Pala. But both are some way down the track, and will be desperately needed.

If you assume, that the price of NdPr will double over the next few years, which is a distinct possibility, Lynas could just print money. I am not completely familiar with Lynas anymore, but if I assume the last Quarter as a standard Quarter going forward, then Lynas will produce 5400t of NdPr p.a.. If I further assume unchanged costs from the last Quarter, but a price of 85 US$ for NdPr( vs current 45 US$/kg  spot ), operating profits of Lynas could actually hit 200 mill A$ p.a and even some!.. In light of this leverage, the current net debt of 400 mill US$ = 535 mill A$ ( average interest only 2% ) does suddenly not look frightening anymore. Certainly one to watch very carefully - I have not seen any detailed research on Lynas for years....Could well be worth putting in some effort and do the work, as the stock could move quickly, if rare earth prices continue to normalise.

Have a nice evening