Good afternoon
a little bit of profit-taking in equities, bonds trading little changed at relatively high yields, and some profit-taking in metals. The US are closed today, while the world is gearing up for one of the more interesting G-20 meetings in recent times. Everybody is watching Trump´s action, as well as the new-found European unity! Unfortunately, we will also see a lot of nasty scenes - hard-nosed left wingers from all over Europe against hard-nosed German policemen - both of them I would not like to meet at night!!
Steel prices holding at very high levels, same for iron ore...absolutely amazing, how analysts keep on getting it wrong. A few of them even calling it down to 40 US$ very recently - it´s now trading in the mid-sixties again. By all means - that´s a hefty difference! I am not saying, that iron will go up - but I think anything below 50 US$ will be seen as a great buying opportunity.
Somebdy has sent me a recent UBS-report on all aspects of the rise of the electric vehicle, with input from 37 different analysts. One aspect of it is, UBS believes, that the use of Lithium would go up by 30x, for cobalt by nearly 20x, and for Rare Earth by 6.5x , even for nickel it would double, if the world would only buy electric vehicles in 2030. I do not want to rule this out at all....but even at 50% use of EV´s, we would need to find another 1 millt p.a. of "conventional" nickel - as opposed to NPI - which would roughly be equivalent to a doubling of conventional nickel production. Given that 80% of conventional nickel production is loosing cash today, prices would have to go up very substantially to incentivise this kind of production growth. The negative side of it - it might be some time, before base demand for nickel from this source will make a meaningful difference.
In any case, very difficult not to see higher prices long term for cobalt, Rare Earth, nickel and copper, if the rise of the EV continues, as it should. The outstanding looser would be platinum, as we would not need any catalysts anymore! Lithium might hold it´s high prices for longer, as we believe today: The world is full of the stuff - but it´s not easy to produce it in the form, which is needed by the battery industry.
I think when a cities like Munich and Stuttgart, home towns of BMW, Daimler and Porsche, are seriously thinking about a ban for diesel-powered cars from it´s streets, it´s time to look at scenarios, under which the use of EV´s will sky-rocket!
In the absence of interesting micro-news, I have had another look at
Prairie Mining. A few triggers are on the cards for them - but realistically, all after the summer. Their Chinese potential partner is probably about to finish their feasibility study on the Jan Karski Mine. The only problem is, that we will not hear that much about it, as it will be a so-called "Chinese Feasibility Study", which will NOT be JORC-compliant and as such, cannot be published. From what I have been hearing, the results should be pretty much in line with the results of PDZ´s pre-feasibility study: That called for 24 years of production at cash costs of 25 US$t, / yearly production of 8 mtpa / about 600 MIll US$ in capex, working capital etc / 257 Mill US$ net cash flow at price of 75 US$/t thermal coal vs 79 US$ today. The disandvantage of a "chinese" feasibility study I´ve talked about above - the advantage is, that Chinese banks want one - and they are the prime contenders to finance this development. A Term Sheet with them will be the next major trigger - but probably, it cannot be expected much before year end.
The second project, Debiensko, is a little bit behind the Jan Karski Mine in terms of where it´s at in the development, even though it will probably go into production much earlier. A revised Mining permit ( the mine is fully permitted currently, but PDZ would like some changes ) should come through in Sept/Oct, enabling further progress. Both mines together have an NPV10 of more than 2 bill US$ at 125 US$/t for coking- and 75 US$/t for thermal coal - even taking into account, that total capex will be around 1.1 bill US$, this leaves dramatic room for an improvement in the share price. While both mines are years from production - as usual for coal mines, which need long lead. times - we have seen over the last 1- as well as 2 years, that some of these mine developers do rise, if the story is good enough, on progress ( PDZ´s share price doubled over the last two years ). Obviously, there is no major hurry to pile into PDZ - but once good news is out, they could move quickly. And last but not least: Even though these rumous have not continued, it would still be decent deal for JSW, or / and Bogdanka, to take this company over! The strategic value of PDZ is not to be underestimated, as Europe is importing 70% of it´s coking coal from places 10-20.000 km away! And while we do not like thermal coal these days, it´s a fact, that we will need it for a very long time to come. In terms of valuation, a lot depends on the price of future equity raisings, which will certainly be needed. But in the long run, we are talking a target valuation of multiples of today´s price!
So be patient, and have a nice evening!
WS
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