Market Update

Exploration hype Antipa - Mineral Resources - Pilbara - Liontown - Lucapa - Resolute

Good afternoon

iron ore got hammered the last few days - by around 10$/t to the low sixties. Iron ore had escaped the weakness of base metals this year - well, so far! Thermal coal also trading ( at a very high ) 98$/t now, while coking coal is holding up very well at this stage.

General Motors closing part of it´s US manufacturing - partially because of high steel prices. Thank you, Mr.Trump! There is also a lot of speculation surrounding the incredible weakness of the oil price - in terms of WTI, down from 75$ in early Oct to just above 50$ today - and some pretty adventurous conspiracy stories are making the rounds. In terms of timing, the fall is pretty much aligned with the Kashoggi story….perhaps no surprise??? If true, I am sure, that oil is currently overshooting to the downside…Trump´s mates in Texas surely don´t like oil at 50$! But for our miners, it´s certainly good news. Energy costs had become a bit of a headche for Australians - electricity prices very strong, gas prices very strong, oil prices very strong all at the same time. The recent fall should alleviate some concerns on the cost side of miners in Australia. But on the flipside - I wonder, whether the fall in oil has had some impact on pricing of metals and other commodities via commodity funds?

To come back to my trip to Australia…

I had written a few times about RIO´s rumoured exploration success in the Paterson province of Western Australia, about 130 km Nort-North-West of Telfer, the large NCM copper/gold mine. I just checked my emails - I had bene talking about that in early June. Back then, the market was not really interested in it…but that has certainly changed big time this month. There have been a few larger than normal newspaper stories about it, as RIOP has built their 40-person exploration camp right in the middle of nowhere, and has even asked for permission to build an airstrip, which would cost 8-10 mill A$ on it´s own. Little Antipa has surged on massive turnover from the 1.5ct-level to today´s 3.5ct, and everybody is trying to buy the neighbours….RIO have not announcved anything as yet, but I guess the pressure is building for them to announce some results to the public. Perth contacts of mine quote unnamed RIO-geologists as saying, that they are certainly up to something, and it could be the best copper find in Australia in at least 25 years. RIO have increased their land position in the remote area from 1000sqkm 12 month ago, to 11000 sqkm now…Fortescue have also joined in the land grab. and a few days ago, AIM-listed Greatland Gold announced a fantastic drill hole, containing 275m with 4,77g gold and 0,61% copper from about 450m depth, in a slightly different area, but not far away. This is the kind of hole getting every major excited! Anyway - interesting to see all this happening, and I think a nice discovery would be of market relevance, as we need some good news to come out of the current depression! See a land map by following this link - it shows the great exposure of AZY to a potential discovery.

Today, BHP announced pretty exciting drilling results not far from their major mine Olympic Dam, and also OZL´s Carapateena mine, in South Australia. 425m with 3% copper and 0,6g gold ; 406m with 0,66% copper and 0,35g gold; 77m with 2.11% copper and 0,54g gold are certainly exciting . The neighbouring companies Argonaut and Aeris went for a good run today…Another interesting aspect about is, that BHP announced this today - RIO will come under even more pressure to announce something about their find as well. OZ Minerals are probably the largest ground holder in the immediate neighbourhood.

The good news from all of this: there is still life in the market!!

Mineral Resources - also had their day in the sun last week! Don´t ask me, why it seems to be all over already, as they announced the sale of 50% of their entire Wodgina lithium asset to Albemarle for 1.15 US$ in cash….so valuing the whole thing at 2.3 bill US or 3.45 bill A$. That compares to todays market cap of 2.66 bill A$. JP Morgan in a recent research note wrote, that 49% of Wodgina might be worth 500-750 mill A$…so the actual sale price is 100% higher than their high-end valuation! Albemarle as the No1 lithium producer is probably the best JV-partner MIN possibly could get….While the iron ore operations of MIN are not worth much in my opinion and in the current market, their 250 mill EBITDA p.a. mining services business is certainly worth a lot….say 1.4 +bill A$. So in total, I think MIN are worth more than 4 bill A$ or about 20 A$/share. While the market will probably not want to pay the corporate premium Albemarle is paying, I still believe, that MIN are very cheap here and a very good buy. I would not be surprised, if the company would pay a special dividend as well. Chris Ellison is a very strongly minded MD, as is his Chairman…I really like those guys. At the recent AGM, the board and management got - once again - heavily criticized for their high numeration - the 4 Executive Directors got about 10.6 mill A$ or 6.6 Mill Euros combined. In my opinion, for one of the most succesfull resources groups in Australia, there is nothing crazy about their salaries…The chairman, in good style, told shareholders at the AGM, that they should sell their shares, if they don´t like it…I like them. and I might buy more of MIN…

Pilbara - this is the other large, Australian-based lithium hard rock story….( well beside of Kidman - they are tied up with SQM now ). Their valuation, based on the MIN-transaction, should be substantially higher. Their had been some rumours prior to the MIN-deal, that Perth-based Wesfarmers, a Perth-based 35 bill A$ conglomerate, and well cashed up, would be interested in buying into MIN´s lithium asset. Normally, when there are rumours in Perth, there is some truth to them - being such a provincial and isolated city, where everybody knows everybody. I am tempted to buy some PLS as well…they are the only large hard rock producer left in the moment, without a large partner…

Liontown - met with their long term Chairman and major shareholder, Tim Goyder, Tim Goyder has been around for a long time in the Australian mining scene. originally, a very succesfull business man in mining services, the last few years have been a little more subdued. The main otehr companies he is involved with are Chalice, which had some success, without having the big breakthrough, and Strike - well, we all know about them and they will hopefully come good! LTR have done well by securing some good lithium assets, Kathleen Valley and Buldania, both in Western Australia. Kathleen Valley has a current resource of 21 millt grading 1.5% Lioxide, and some tantalum ( scoping study due in kan/Feb 2019 )- that´s good size. Buldania will probably be larger , but also at lower grade ( maiden resource estimate in 1st Quarter 2019 ). The market cap of about 28 mill A$ leaves some good upside - I think the market might expect a capital raising in the not too distant future, which is probably right given the last known cash position of 2.5 mill A$.We all know, that there is quite a bit of lithium around tehse days - but as Tim rightly pointed out, it´s just about all contracted out of bound to some major company - hence their might well be room for 1-2 newcomers. Interesting also, and certainly an endorsment of management and asset-quality, is the fact, that Craig Williams, co-founder and former CEO of Equinox ( which was taken over by Barrck in 2011 for 7 bill A$ ), who is very highly regarded. I think it´s very worthwhile to have a good look at LTR.

Lucapa - met with their IR man , as both MD and Chairman were in Lesotho, where the comissioning of their second diamond mine should happen right now. The company is at a very intersting stage…Angola ist still prodducing nicely, and while tehy have not found the original source of their alluvial diamonds, exploration is ongoing. They have also found anotehr alluvial area, from which at least initial production has been positive. As indicated above, production from their new mine Mothae in Lesotho is imminent and should provide the company with +30 mill A$ in EBITDA p.a.. And last but not least, they seem to be up to an exciting diamond find in Australia, called Brooking, where they have announced some highly encouraging numbres, which are being followed up. And lastly, the company is pretty excited by the recently announced, new Angolan system to sell the diamonds. LOM believe, that this could improve the sale prices of it´s diamonds very considerably. The JV has stockpiled a numebr of exceptional stones, found in the 3rd Quarter, from recent sales to market them under the new regime. A sale is expected some time this Quarter - some nice headlines could come from that.

I think all of the above has the potential to be a real game changer for the languishing share price - especially, as the market for high quality diamonds continues to be very good ( contrary to the market in more average stones, which is under pressure ). One word of caution, though: The company has announced in October, that first diamonds should be produced from Mothae in early Nov - but an announcement to that regard is still outstanding. I would rather pay 24ct than 20ct for LOM, and have confirmation, that Mothae is up and running!

Resolute - the share price has been under pressure lately, mainly because of scepticism about the ramp up of the sub-level cave operation for Syama. Very understandable - sub-level cave mining is something like the masterpiece of modern mining, and not an easy one! highly mechanised, it´s almost poised to run into start-up problems. I think the market is largely expecting this - but any prolonged comissioning problems here would put the balance sheet of Resolute to the test. According to the Mining Journal, first ore is expected in December. I have very little doubt, that this will be a very good mine - but it might take some time to get it properly up and running. Again - I would rather pay a little more, and wait until initial reports have been recived, confirming, that all is going to plan here.

have a nice evening


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