Market Update

General - Gold Stocks - Crusader - Lynas -

Good afternoon

what a great market! But metals/minerals are crying for a correction - and it looks like we will get that today, at least in the base metals. Since recent lows in June, Nickel is up by 36%, Copper by 26% and Zinc by 24%. While I believe, that prices for all three have gone up for fundamental reasons, I think tehy all need a break!

Gold is perhaps a bit havens are very much wanted in a world of political and physical hurricans! The US-situation does remind me of a very good book I have been reading recently, American War from Omar El Akkad. Sience Fiction in 20175...and all of America´s East Coast is gone because of flooding. Perhaps Trump is getting the emssage, that Global Warming in fact is real!

Lynas - Rare Earth prices are continuing to go through the roof - NdPr are trading just above 80$, and also others like Lantanum, cerium etc have gone up by 50-100% this year. Lynas has gone up by 150% since May, driven by full production, strong prices, and a move to very strong profitability. Debt has been reduced, convertibles are getting exercised. I understand, that the terms of the convertible also make it possible for the company to call them now. That would trigger more selling - I guess part of the convertibles will be held by hedge funds, which are debt-funds and will continue to sell the resulting equity. Also, they are sitting on very nice profits! 

BUT LYC is the only listed producer of this stuff of some relevance outside of China - a truly unique and strategic position! I think it would be good for the long term usage of Rare Earth, if prices would not go up to dramatically from here. The company has an EV of more than 1.4 bill A$ today....amazing turnaround from the dead! But what I want to say is, that it never hurts to sell a few and take some profits on the way up. Very hard to say, what investors will be happy to pay for this stock. Up to a degree, they might just need to have some, as the stock will most certainly become an ASX 200 Index member soon. This might be a good time for LYC to call the conversion! Great story, and I will continue to ride it - but I have sold 25% of my holding.

West African Resources - announced some high grade drilling results from their M5 deposit ( the other, stunning results from the past had been from M1 ). Significant, as the chances for not only M1, but also M5 to go underground are pretty high. 

Macquarie also started coverage with a 50ct target - but I think every valuation is difficult for as long as we don´t have the new reserve/resource estimate, at least. We should have that within a month. The stock is a bit tired in the moment - the placement at 31ct has taken a lot of buying out of the market. But I continue to hold a large position myself, as a substantial reserve increase should trigger some corporate interest.

Gold stocks - Australian companies have been relatively subdued recently - at least compared to the excitement in physical gold. The A$-strength has certainly worked against us here! Domestic Australian producers have dramatically outperformed stocks like Resolute, Perseus or others, with assets outside. No doubt, that country risks are playing a greater roie these days - terrorist attacks, government nationalism and general political instability have not helped here. But based on numbers, the value is in these non-Australian stocks. My favourite gold producer Evolution, for example, is looking very good on the charts - but I think this type of stock might well underperform a bit, as the A$ gold price is 10% lower than it was in the middle of 2016. Some Australian companies will also be affected by the hike of royalties in Western Australia, which does not really impact the low-cost producers like EVN, but does do so  on higher cost producers like BLK or DRM., where the margins are slim anyway.

Overall, I would certainly not reduce my exposure, but use any weakness to add stocks like PRU/RSG.

Crusader - Stratex International, who are planning a merger with Crusader, giving mainly cash to the merged entity, have today received some shareholder opposition against the merger. We will see what happens here...basically, I think it´s a good deal for Stratex as well as Crusader - giving the latter some needed cash at a premium, while giving Stratex great gold leverage via Borborema and their second project in Brazil. Stratex had announced yesterday, that they had defined cost savings of at least 20% in capex for Borborema.This would put Boroborem within reach of being financable. But for all of this, the merger would need to be completed before any substantial outperformance can be expected, as Crusader is in need of cash! The payment for Posse will be made in 15 monthly instalments, following the recent receipt of the first 300.000 US$ ( in total 2,57 Mill US$ ). With 8 mill US$ in cash, the merged company would be able to finish a bankable feasibility study for Borborema ( capex envisgaed to be below 100 Mill US$ for 70.000 oz p.a. and NPV of 250 mill$ ), plus advance Juruena, which is awaiting enviromental approval and is small at this stage, but could add cashflow of 15 Mill US$ p.a. . Overall, an interesting preposition - but the corpoarte side of it needs to be completed first!

Have a nice weekend!