Market Update

General - Genex

Good afternoon

when the FED did make it´s move Wednesday, all hopes were destroyed quickly and markets tumbled…NÀSDAQ from about +1% to -2.17%….and Europe got the expected hammering yesterday., down by about 1.5% . Last night in N.Y. and today in Europe, the selling continued.

The GDX got a hammering on Wednesday - down 5.4% on heavy turnover - the GDXJ even worse…But gold , following some initial weakness - has been fighting back and feels pretty good! A bulltrap quickly became a bear-trap. The A$ gold price at 1775, and oil very weak - that´s goldilocks for the gold miners! Base metals are continuing, what is effectively a sideway-movement.

Mattis also gone…not that I liked the guy - but he is certainly a very respectable man - and he was one of the very few halfway sensible guys around Trump. Very bad news!

Genex - so, nearly done! The company yesterday announced a Term Sheet with Energyaustralia, the third largest energy retailer in Australia, with a BBB+ rating. EA will get 50% of a JV, which will own and operate the Kidston hydro project. In return for this, EA will give the JV a guaranteed offtake agreement for at leats 25 years, probably 30 years. They will also invest a substantial amount of equity into the JV. leaving GNX with only a very small amount of equity to bring to the table - probably around 20 mill A$. Following the investment of EA, GNX is planned to have a IRR of 20% from the project. Over 30 years, that´s not bad! Normally, everybody in Infrastructure-Investment is happy with 10% IRR these days!

The announcement obviously has been written by the lawyers - in fact, negotiations are very far advanced, and the transaction is all about done…The main thing missing is the agreement for the power transmission - and that is very far advanced. Also, ARENA ( another government body ) will add to the financing. But then, in the current market, nothing is done until it´s done! The waiting game for us is not over - but we are clearly getting there.

In Australia, hardly anybody is left in the office…Christmas time is also the time of the big school holiday, and just about everyone has closed the book for the year. Normally, the stock should have put on at least another 5ct or so…But for us, this leaves a bit of time to buy more stock at prices below 30ct. Analyst, in quick updates today, valued the stock between 52-and 80ct/share - somewhere in the middle is probably realistic.

I have done a very simplicistic exercise:

20% IRR ( les say 2% gone for headoffice etc )= 18% IRR, on a share price of 26,5ct, brings you to a value of 1,39 A$/share in 10 years time.

If someone would take it over today, at 50ct, a 10% IRR would bring the valuation in 10 years time to: one guess? 1.39 A$/share!

As this project is not done as yet ( even though the risk is very much reduced now, and the technology has been used often around the world ), a higher IRR of 15% would have you arrive at a share price of about 34ct share as at today. That´s where this thing should at least trade at today…and share price would apreciate 15% p.a., and more, with consistent risk reduction to a terminal IRR of say 10% upon production in late 2022.

We will have the company presenting on our conference on 22nd of Feb - by that time, we should have more news and clarity.

Nothing is a no-brainer - but GNX gets close to it. I declare- once again - my substantial interest.

As I said before - this correction is pretty fast and furious and unnerving…and we all hope, that it is just a correction. But valuations of equity markets are generally pretty ok now - and I still expect the FED to slow down dramatically in the new year. Potentially, that should put a floor under markets - as well as a floor under the Euro against US$. I maintain my view: If Trump becomes halfway sensible about the trade issue, 2019 might actually not be as bad as we tend to think today! Well - none of us really knows - but let´s not get too negativ!

In any case - enjoy a great Christmas, and have a good start to 2019! I will be back on the 6th of January…


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