Market Update

General - Daimler - Sheffield - Paringa - Breaker - Antipa

Good afternoon

From a sluggish start, equities are gaining pace in Europe now, inspired by the fact, that Chinese and US officials are at least talking! Rumours, that China will cut import tax on US cars. Mr. Macron promises about 10 bill Euro to help the lower 20% by adding 100 Euro to the income of minimum wages earners, having pensioners with less than 2000 Euro not pay any social insurance etc. Basically, I think these measures are examplary - but who is going to pay for them? He has not given us any hints, and this will make the Italians very happy to keep on spending!! European politics remain difficult, to say the least - and in England, the POM´s are laughing at Mrs. May.

Metals are having a good day as well - LME stocks are now on 10year+ lows for lead, zinc and copper, and 5 year lows for nickel! In terms of % of production, the stock levels are even lower. IF Trump and Xi will get their act together, we could be in for a very good 2019 in metal markets…if their wouldn´t be this little “IF”! As you can see, I have not given up hope!

Metals except for gold are moving despite a tsrong US$, which started going higher following the PPI numbers.

PPI in the States at 2.8% ex Food and energy …some pricing pressure is there…but bonds in nearly all markets are holding their gains.

Daimler - orders 20 bill Euro´s worth of battery cells until 2030….they still have not understood - the technology is in the value! That´s almost like buying the engine in China! The number sounds very large - but I hope, that this will be only a part of what they need. Daimler´s revenue is about 175 bill Euro - across all divisions….so 20 bill over 11 years is not such a surprising number. Still - it certainly shows their strong commitment to EV´s….

Sheffield - had a long chat to them re their financing numbers, and I came back relieved. All these numbers quoted , which would result in about 260-270 mill A$ in equity needed, are extremely conservative and nothing has changed the capital numbers for the project. The biggest number as part of the increased financing package is about 50 mill A$ in cost overruns. It is important to remember, that SFX have agreed on an EPC contract with the engineering group GRD, which is quoting a fxed price for construction - and does not include a 50 mill$ cost overrun! It will also assign a healthy margin for GRD to be able to sign on a guaranteed price - I guess 20-25 Mill A$ at least. So as part of the financing, 50 + 25 mill A$ could be removed, IF SFX would get a takeover bid. As part of the financing package, there are also about 15 mill$ included as placement/advisory fees for a large equity raising - again, if a big boy takes SFX out, that would not be eneded - and last but not least, excessive requirements for SFX to keep working capital in the bank for a time frame, which again looks very conservative. So overall, one can deduct nearly 100 mill$ from the financing, IF the project would be financed by a large aquirer. In the end, we are arriving at numbers bang in line with the orginial numbers quoted by SFX.

This does not change one major issue: if SFX will go this alone, they will have to raise a very large amount of equity! But I guess none of the investors in Sheffield do expect this to happen - the only question being, whether some large producer/offtaker will take 50%+ of the project, or the whole company. And the latter is the only outcome, which makes sense to me!

This is a worldclass asset, in a worldclass jurisdiction, in a market, which is going into a substantial supply deficit - with a 40 year+ mine life! The valuations for takeover have not changed a bit ( they are around 2$, according to various analysts ), and everyone, who has not been able to take part of the placement or - for small investors - to take up the SPP, should buy SFX in the market. In the current, relative depresse market, it might well be, that SFX cannot realize full value - depending on the bidding tension they might or might not be able to create - but in any case, it would have to be substantially above current prices! I declare my substantial interest.

Paringa - got a new MD…A pretty senior ex-M&A/Capital Markets banker from the US, born in Mt.Isa, Australia, Mining Engineer by education. Even though he has not worked as mining man in 20 years, he could be a good choice. I assume, that he has enough mining experience around him - but I have not met him , not to talk about his operations guys - so I cannot judge. After having made a bad choice with the last MD, I am sure, that chairman Ian Middlemas has tried his best to get this guy. He does not come cheap - salary as normal, but 5 mill performance shares, depending on coal production targets. Otherwise, I have heard very positive comments from people, who should know, very recently - project is making good progress, and perhaps of similar importance, the market for Paringa´s type of coal is looking very healthy in the States. Trump tries to help coal where he can - whatever we think about that - and prices for natural gas in the US are as high as they have not been since 2014, making coal very competitive indeed - despite rising coal prices. PNL will most probably announce in January ( hopefully early January ) first coal production - derisking starts from here!

PNL´s performance has been pretty disappointing - but I think this journey is coming to a positive end now! And who knows - a M&A banker at the top might know, who would be a buyer? I always thought, that Alliance Resources Partner are the natural buyer of this asset - but given their strong emphasis on dividends, I assume, that they are only interested in producing assets. Well - we are almost there! Worth having another look, I am sure…or averaging down!

Breaker - Tom Sanders was granted 3 mill Options, exercisable at 46ct. Some people might not like this - but Tom has supported his company through thick and thin, even putting another 500.000$ into the last placement, and working for a very modest salary for years- so I am happy with this modest grant of options - even though it might not have been terribly smart - in the end, Tom is more than motivated to make this a success ( he owns 22 mill fully paid shares , even prior to this announcement ).

Antipa - stock well quite heavily today, following an update of exploration within the RIO JV. RIO have not done all that much - taken into account their 11 mill$ spending so far ! - showing us again 1. that large companies are very expensive exploreres and 2. sometimes have a different agenda than the junior JV partner! I hope, that we will get some indication soon, that RIO will spend some more money, and sensibly so, as they are not obliged to do so. I guess the big boy is very much concentrating efforts on their 100%-owned ground, and unless the ercent AEM survey does give them a strong hint of something, they might well continue to do so!

Have a nice evening


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