Market Update

Australia - Panoramic - Evolution - Bellevue Gold - West African

Good afternoon

back from Australia - bloody cold here!

As usual and as you would expect, I had a wonderful time again in Australia, meeting many interesting and nice people/friends, and also some good companies! But I also have to say, that ( like probably everybody else these days ) the mood is very uncertain - and uncertainty is poison for the market, and even more so, for our resources-development stocks! Especially in Perth, invetsors were pretty depressed. What had been a cautiously optimistic mood as recently as 2-3 month ago, has turned into an enviroment, where it has become hard to raise any fresh money - unless your story is outstanding! Good to see, that Goldmans are still very bullish for the resources space, as for now, everybody seems to sit on his hands.

Smaller companies in the tech space as well as in resources are having a rough time. Everybody has been hurt by the recent performance, and the general comment was, that institutional investors have more or less closed their books for the year.

The prospect of probably having a Labour-government in Australia from the middle of next year, is another negative. Mr.Shorten is not seen as somebody only halfway positive for business. While this a comment you would probably expect from financial market players and usually conservative miners, this opinion was very pronounced. The current crown enquiry about conduct in the banking industry is a huge topic, and the press is overwhelmingly negative. Funny enough - the only bank getting positive commentary is my old employer, Macquarie Bank ( and I could not agree more! ). But all of this is adding to the negative view on money and big business - not that much different to the mood over here!

Thje most exciting part of my trip was a visit of Savannah, the old and new nickel mine of

Panoramic - in the far North of Western Australia. That´s a long way from home! 3200 km from Perth…and a few hundred km South of Wyndham, which is used as port to export the concentrate to China. 40-43 degrees up there at this time of the year, which is the beginning of the wet season, with around 100mm of rain/month for the next few month. My impression of mine management was very positive, especially the second line people - very driven, very precise, and very experienced. Tough work up there, hot and now beginning to be humid as well - and everybody is working two weeks on ( for 12 hours/day in two shifts )/ two weeks off. Nothing for boys - I found it hard enough to walk around there! Anyway - these guys are used to it, and they know, how to handle the heat - for example by drinking 6ltr of water/shift! PAN have spend a lot of time and money to go through every bit of the plant, including some minor changes. It would not be a surprise, if the plant could handle 5-10% more ore than the previous 940.000t p.a. on average. But for that, mining will have to gradually ramp up. Comissioning is taking place in the moment, and while there undoubtedly will be minor hickups, first concentrate shipment as per the companies guidance - early in the March Quarter should be easily done. For the next 9 month or so, production will come from the old Savannah ore body. Simultaneously, access to Savannah North is being developed, and this new ore body should be reached by August or so. Savannah North has better grades than Savannah, and will be the mainstay of production for the next 7 years - unless PAN can find more ore there. Thi sis highly probable , as only part of it has been drilled so far. Further exploration will be done from underground, once this has been developed - obviously much cheaper than to drill from the top! The by-products copper and cobalt help to get the price of payable nickel down to 3.50 US$ ( at 0,75A$/US ) - so total costs ( I estimate around 4.25 US$ )are still relatively comfortable below the current roughly 5 US$. for nickel. Not to forget - the highly desired nickel from PAN demands much better terms these days from the offtaker Jinchuan, than would have been received under the old contract. Still - a bit disappointing is the fact, that the nickel price is so low! I guess none of us would have thought this possible, given the continued supply shortage of nickel, and especially nickel sulphate. The world is an uncertain place in the moment - and base metals have been used by market players to go short. In light of the trade war, and the resulting uncertainties for Chinese growth, perhaps not that surprising. But we should not forget, that all major base metals currently have a negative supply/demand balance ( the gap is coming from stock piles, which are shrinking almost daily in the moment ). This cannot go on forever - either a recession will destroy some demand, or prices will have to go up! Overall - a fantastic trip! Not only because it increased my confidence in good old Panoramic - also because it enabled me to see great country and meet great people! I admire these guys up there doing the hard work under hard conditions!

West African Resources - delivers and delivers and delivers - yet continues to go more or less sideways! Had a very good meeting with Richard Hyde, who is continuing to push ahead with development of the Sanbrado Mine in Burkina Faso. I think the debt financing must be very close - at least there is a lot of interest to finance Sanbrado. A problem might well be to find an instituion, which has a book large enough to finnace something in the order of 200 mill$ in Burkina - I guess it would have to be either a consortium of banks, or a large PE-type of organisation. Anyway - we shoudl find out soon. I have no doubt, that some kind of equity participation would be necessary as well - but given recent announcements, that might only be small. And if all too hard to get from the market, I am sure, that he would get it from a corporate investor. But I am sure, that this is not the preferred route! Early work has started, like the development of the underground portal. The team continues to build, and he has found some excellent people around him. Let´s not forget, that Richard is geologist by training - not an engineer. He has employed a very experienced Chief Development Officer, who has built two substantial gold mines in Burkina before. Security in the mine area is no issue - but he achnowledges, that Burkina s a country, and including the capital Ougadougou, is not what it used to be until a few years ago. This - in my opinion - might be one reason for teh share price. The other reason probably is, that everybody had been expecting a takeover bid, and that did not eventuate - perhaps teh company wanted too much at the time?? In any case - the project has been much advanced, and is still continues to grow: Just today they announced the assays for the recent, extremely important 1000m hole, which intersected the ore body 700m below surface with 25m at 15g/t.This hole ( subject to a little more drilling ) looks like it will extend the ore body by another 220 m - that would be another 3 years of high grade underground mining! The target ( and a very realistic one ) is now to produce more than 200.000 oz and potentially 250.000 oz p.a. for 6-7-8 years! What a story…and never mind, eventually we should double our money here.

Evolution - Jake was in great shape but I think he is also a little frustrated about the fact, that potential and sometiems questionable growth is still getting rewarded vs Evolutions amazing consistency amid their theme, to deliver profits throughout the cycle. His aquisitions have been second to none, Ernest Henry is just spitting out the cash, and Cowal is developing into a world class mine - also by size. The best about that: it´s happening via exploration as well as fine tuning production, and gradual increases of the plant. The step-out, high grade exploration results like 46m with 7.8g continue to raise expectations…Company guidance has been slightly increased for the enxt three years - production relatively stable around 750.000 oz for the next three years, at AISC of around 875 A$/oz. Sustaining capital + major project capital is expected to fall gradually from 270-335 A$ this financial year, to 195-250 mill A$ in FY 2021. This should ensure, that Evolution will continue to be a strong, free cash generator for years to come, to the tune of 220-350 mill A$ p.a. before tax, These numbers exclude the potential underground development of Cowal underground, which could add up to 100.000oz p.a. to Cowal - but starting beyond 2021. In the meantime,w e can be assured, that Jake will not embark on any value-destructing takeovers. There is little on the horizon, which he could do there…I am sure, that he would not look at something like WAF because of the country - but one of the few new projects, which could get his attention, might well be

Bellevue Gold - mind you - I have absolutely no indication, that Evolution is even looking at it. But in my opinion, this company is coming up on my radar screen as having made a very unusual discovery in terms of size as well as grade. I have been a little cautious on Bellevue and did not have them in my universe, as I know, that Steve Parsons has disappointed many investors with his last venture, Gryphon. Having said this, it´s main asset in West Africa led to the takeover by Teranga and is now being developed But Steve overpromoted his story then, and while the last few years have bene more positive, he nevertheless burnt quite a few investors on the way. Be it as it may - he has done an outstanding job to get his hands on the old Bellevue Gold mine, which was producing until 1997, and then ran out of reserves. The asset went through various changes of ownership, and was never ever looked at again with modern exploration techniques. Stephen did just that - and within 11month, his team established a resource of 1 mill oz at 12.2g, including the Viago lode, which contains an inferred resource of 550.000t at 22g!!! That´s outstanding, and if you find 1 mil oz within such a short time span, you can usually be asured, that there is more, That´s just what the company believes, and they have raised 15 mill A$ recently with North American institutions. As so often, 1832 Asset Mgt´s Rob Cohen has been very early here, and is the largest shareholder. Potentially, capex will only be small for such a high grade deposit - you do not need a large plant. As an example, a small 500.000t plant could be used to produce around 150.000oz p.a.! I am sure, that all these cashed-up, Australian gold miners are watching, what´s happening here. I am watching as well - in this market, there is no hurry, and the stock has had a tremendous run behind it.

But I want to emphasize again - I have no indication at all, that EVN could be interested here. But good, new mines of reasonable size are hard to find in Australia, and I have no doubt, that in the hands of NST ( who probably have their hands full in the moment ), SBM, SAR or EVN, the project would potentially add value to them.

Enough for today - have a nice evening!


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