Market Update

Perseus - Evolution - Panoramic - West African

Good afternoon

Perseus - good Quarterly: 51.500 Oz at AISC of 1112 US$/oz see the company finish the half year right in the middle of guidance in terms of costs and production. Costs in the current Quarter have been a little bit disappointing, given that 6% higher production resulted in a small increase in AISC. The company explains this with the conclusion of wage negotiations, which resulted in a wage increase dated back to 1.1.2016. Hard for me to quantify, but given the length involved, this would have been a considerable amount - all expensed in the last Quarter. 

Sissingue develoement is on target in terms of costs and time - first gold production in the March Quarter, I guess towards the end of it. This will again impact positively on group costs, as this mine should produce gold at 700 US$ AISC. 

Yaoure feasibility is also on track to be finished by year end. All drilling will be done by the end of July, new resource estimate soon after. The company is happy with results so far - no real changes from what they expected following their due diligence before the purchase. 

Overall good Quarterly - costs will need to fall further. For the next few years, PRU will produce gold at roughly 1000 US$/oz AISC ( I hope for a little less! ), resulting in great leverage to the gold price: A 10% rise of gold should ( back of the envelope like everything else in my blog ) increase free cash flow by 50%!  But it won´t be easy to fully finance Yaoure from free cash and debt - I fear, that some equity, sell-down or streaming deal might be needed at some stage next year.

Evolution - that´s a different animal! Great diversity from several mines plays out again! Not all mines performed to satisfaction last Quarter, but below the line, we have another record Quarter at stunning costs for EVN. 2180.000 oz at 825 A$ AISC/oz are nothing else but world class! Even more so, as not all mines EVN owns are world class. This company is testimony to what good management, and a highly dedicated and motivated work force can do! You know, that I am close to Jake Klein - but honestly, my praise has nothing to do with this. The numbers speek for themselves! 

EVN´s mines produced net mine cash flow of 137 Mill A$ last Quarter, enabling debt pay-down of 125 Mill A$! Net debt is now down to 399 Mill A$, a level, which EVN is very comfortable with. Pay back will be slowed down now, also, as the large cut-back of Cowal will be starting soon ( adding another 8 years or so of mine life to a total of 15 years! ). In 2 years, Cowal has paid back 47% of it´s aquisition price, with 15 years or so  of mine life  remaining. 

The average mine life is now 8 years...not bad! And if rumours are true, that EVN wants to sell Edna May ( which actually had a much improved Quarter ), this will increase a little bit again.

Ernest Henry proved, that it has been a great aquisition, delivering 47 Mill A$ in net mine cash flow during the Quarter

Guidance for 2017-2018 will be announced with results on 17th August - the Sept Quarter should see 200-215.000 oz of production.

57 Mill A$ of exploration last year ( of which 32 mill$ were resource definition drilling ) have not delieverd anything major as yet ( obviously, resource extension drilling at Cowal has been extremely positive )  - at least no major disovery. But there is positive noise from Mungari-exploration, as well as from ex-Phoenix-owned properties, and from Cracow. The budget should be similar this year, but weighetd much more towards greenfield-exploration.

The A$ gold price is no great fun in the moment - otherwise, a great Quarterly from Australia´s premier gold miner!

Panoramic - their optimisation study has been announced today! better, than I hoped for: The company has used currency and nickel price as at 30.6.2017 - 4,21 US$ and 0,769 A$ ( which is about 4% higher = worse currency, than in the feasibility study. The Savannah Mine will have a shorther mine life of 8.5 years, but higher yearly production of 11.000t of nickel, 5.800t of copper, and 760t of cobalt. The main cost cutting has been achieved by leaving some lower grade material in the ground, the use of solar power, increased mining rate but also various other little measures. At those prices, PAN would have AISC of 3,40 US$ or 4,50 A$ ( in A$ terms, they managed to cut costs by another 9% ). There remain several, small chances to optimise - but I do not believe, that they would be very material. 3,40 US$/lb Nickel compares to a current price of 4,40 US$ - enough to keep a mine in production, but not enough ( I guess ) to BRING a moothballed mine/plant back into it. 20 Mill A$ would be needed in capex, and another 20 Mill A$ in working capital. Relatively small - but still a lot of money. I do see a good chance, though, that some offtake agreement with Jinchuan or whomever, would include a substantial part of these funds as financing. In the end, this type of nickel is very much needed , and will be even more needed by battery-producers, once electric vehicles take off - and I guess you are all aware, just how desperate the market is for sustainable cobalt production ex Congo.

As you would imagine, the project has massive leverage to the nickel price: A move from 4,21 US$ to 6 US$/lb for nickel, all the rest unchanged, would move the pretx-NPV from 60 Mill A$ to 340 Mill A$, i.e. a 1$move in nickel changes NPV by 160 Mill A$ or 

In my opinion - a great asset, and one day, there will be a mine again - but I still believe, that a sustainable nickel price of say 11.000 US$ or a substantially lower A$ than today would be needed. None of this is out of the question - especially nickel I could easily see back at 11.000 US$ next year. The A$ back at 70ct would also do the job! In the meantime, PAN will and should create a bit of excitement via exploration at Savannah, and via Horizon Gold. 

 West African- not that unexpectedly, given the agressive drilling activity, WAF released some more , good drilling results. at M1 South, the company reported 2m with 59g and 2.5m with 24g, while at M5, they reported 36m with 2.5g and 37m with 2,4g. There are more assays pending from M1, incl some with visible gold. The company is on track for a new resouce statement in September.

Have a nice evening