Market Update

General - West African - Prairie Mining - Strike - Panoramic

Good afternoon

well I always feel bad for my long absence...back from holidays for a few days, and then another week...but I have to admit, that I really enjoyed the beautiful island Sylt in Northern Germany ( for Aussies, hard to imagine, that somebody enjoys beach-holiday with average daily temperature of say 18 degrees! ) and some time on my family farm near Hamburg! Life can be great!

And it´s even more enjoyable, when metal markets are running hot! Copper has advanced 20% this year ( 5% since 31.7. 2017 ), Zinc by 19% ( 9,5% since 31.7. ), Nickel by 15% ( and 12% since 31.7. ), cobalt and Rare Earth have just about doubled this year, and even gold is up by 12.7% ( and by 2.5% since 31.7. ). Iron ore, Coking Coal and Thermal Coal are trading at great prices, which nobody would have thought possible not too long ago - and yet, this does not feel like a bull market at all. We have had some nice share prices lately - but there still is very little euphoria around, if any - and small developers have not shared the rise at all. In a way, that is positive and allows investors to take positions , while everything is quiet - but a little more fun would be apreciated!

What has led to the strength in metals? First and foremost, I think it´s the economic performance of China, which ahs been better than sceptical investors had estimated. But I think in sentiment, the big improvement has come from the dramatic shift in favour of electrical cars. I can feel this with myself - just a few month ago, I ordered my new AUDI Diesel - already now, I feel almost embarassed to not have ordered at least a hybrid car! Thios thing has huge political wind behind it, and I think there is a chance, that this electrical revolution will spread even faster, than it´s looking now. Nickel, Copper, Rare Earth, Cobalt , Lithium - they are the metals of the future, and fantastic numbers of fresh demand are being mentioned. And in almost all of these metals, supply/demand is pretty balanced now. So additional demand might have a pretty explosive impact. 

The big unknown for all of this is technology change: Will engines need Rare Earth in 2025? Will the batteries need more nickel than now? Will they need graphite? 

In this regard, the recent decision by Tesla, to change from induction engine ( which does not need any Rare Earth ) to a permanent-magnet engine for it´s new model, has been sensational news and has put a rocket under the prices for Neodynium/ Praesodynium, which nearly doubled this year and exploded on the news.

Generally, we also had some more news on supply disruptions, which have certainly helped as well. From continung problems at the worlds second largest mine, Grasberg in Indonesia, to power problems in Zambia, copper has been a big beneficiary here, as coking coal, iron ore and thermal coal have been beneficiaries of closures of enviromentally problematic mines in China. And nickel has benefited from continuing pressure on nickel ore mines in the Phillippines and Indonesia. On top of this, investors are starting to understand, that EV´s could nearly double the demand for nickel from sulphide and lateritic depeosits, which is the only material for use in batteries.

So potentially, the fun has only just started!!

Funny enough, not all stocks have profited from the above as yet. Australian Lithium producers have been very disappointing generally. GXY, ORE, PLS ore KDR - just to mention a few of the larger ones - have done absolutely nothing to very little this year. The only larger company, which has performed very well, is Mineral Resources. And I think I know the reason: This is a well-known compnay, management has been proven for many years, institutions like it, and they have profits from mining services + iron ore, so are not entirely relying on lithium. I have bought them some time ago, because I still do not fully understand the challenges and in/outs of lithium production - so I bought this company, relying on proven management. I think the very same reason has been behind the strong institutional buying for this name, implying, that it should make sense to look at the laggards. Improved, institutional understanding of lithium, Rare Earth, Graphite etc will drive more investment into the sector over time!

Panoramic - all of the above has been driving a slow re-rating of PAN from recent lows of around 20ct, to now 30ct - but still a far cry from 40ct-level, reached in February of this year.

As you all know, PAN are sitting on a large, more or less fully developed mine, with mine life of many years to come. While current mine-plan is for 8.5 years, I have no doubt, that PAN will still produce nickel from Savannah in 15 years - provided the nickel price is right.You might remember, that PAN announced the results of their optimised feasibility study late in July, calling for 11.000t of nickel production p.a., 5.800t of copper, and 760t of cobalt. Prices used for the optimisation study have been 4,21 US$ nickel; 2,68 US$ copper, and 27,50 US$ cobalt - as at today, the nickel price is 5,20 US$, copper is 3,05$, and cobalt is 29 US$, while the exchange used has moved from 77ct to 79ct ( a slight negative ). At todays prices, the pre-tax , NPV8 of the project is somewhere between 250-and 270 Mill A$, on my numbers. Only 20 Mill A$ in pre-production capital are needed to bring the mine back into production, + working capital. This is roughly double the current market cap, and I am sure, that the company is not far away from pushing the button to bring Savannah back into production, as the margin of Sustaining Cash Costs / A$-nickel price is approaching 50%. And why should nickel not be trading at levels substantially higher in a few years time? Given the EV-momentum, I think 6-7$ /lb on a sustainable basis are easily possible.

You know, that I have been liking this stock for a long time - but I really believe, that we are only in the early stages of a long price rally. The old high from feb 2017 should be easily justifyable - after that, 60ct, the 2015-high, should be a good target on a 2-year view.

Prairie Mining - the project continues to have strong support from the Prime Minister, his government and local authorities + people. The company announced another approval last week, to re-zone the farmland at the Jan Karski Mine to "mining"-land, an important step within the approval process. The Chines partner has submitted a first draft of the bankable feasibility study recently, and a final version is expected for September. I am just not 100%& sure of what the company can actually announced, as the study is not a study being done based on ASX_approved technicals. It could be, that this BFS will not be published in detail and that it will only be used by Chines Financing partners as the basis for lending. The product-quality is excellent, and China as well as Europe do need the product. I could there very well imagine, that this project will NOT have a big problem to recive Chinese financing, despite the current foreign investment restrictions for Chinese companies. The next step will be the announcement of the bankable feasibility study next month- I am sure, that we will get some strong indication from it, despite the ASX-restrictions.

Last but not least, share price of Polish coal producers Bogdanka and JSW have been very strong lately, adding further support and potentially, also making bids for PDZ from one or the other potentially cheaper. As London stockbroker Beaufor wrote recently: Each of PDZ´s two projects is potentially worth much more than the current share price implies, even at substanially lower coal prices than we have today!! 

West African Resources - announced some more, pretty spectacular drilling results the otheer day. While intersections have not been as long as some previous ones, they have been the deepest intersection drilled so far, extending the ore body at M1. I think the market had hoped for a new resource estimate in time for the Digegrs & dealers erly this month, which did not eventuate. Officially, the company had stated a 3rd-Quarter announcement - so September will be the month! Also, the recent terrorist attack in Ougadogou did not help sentiment, I guess. Despite this, the company has held it´s price level at 36-37ct, and I hope for the next spike with the announcement.

Strike - announced a very important, new contract with Orica during my absence. You might remember, that Orica had paid STX 7,5 Mill$ a few years ago in return for a substantial supply agreement at a gas price, which has never been published, but pretty low, as I believe - at least in comparison to todays elevated prices. Orica had also lent STX 2.5 Mill$.

Orica subsequently made a formal error, which STX used to cancel out this agreement. Orica then planned litigation to get the 7.5 Mill$ back, which would have been impossible for STX wto pay out without a placement. 

A new contract has now been agreed upon: Much reduced deliveries at better prices, a repayment of the 7.5 mill$ only on certain progress on a substabntial gas development, and an extension of the 2.5 mill$ loan from mid next year to 31.12.2018.This loan will be convertible int STx shares at a minimum of 20ct. Theis agreement is in the form of a term sheet - a final and definite agreement is planned to be fixed before the 8th of September. This will remove all uncertainties surround the old Orica-agreement.

Exciting times for STX until the end of this year - I do expect more corporate announcements, and strong progress of the project. I bought some more stock recently.

This is it for the day....and while I am finishing, it´s still raining in Houston, and gold is trading at 1306 - above 1300 for the first time in 10 month!

have a nice evening