Good afternoon
it looks like derivatives, and this exoctic short-volatility ETF´s, have been largely responsible for the recent sell-off! You wonder what sort of time bombs are there around elsewhere!
Obviously, the market is getting a bit concerned about inflation, as economies around the world are exhibiting concerted growth, and the US labor market is showing signs of getting tight. This is probably right...the big question being, whether continued technology improvements , which have been the major driver to hold prices down over recent years, can continue to do so. The reality will probably be, that we are not going to see run-away price increases, but moderate ( and historically, more normal ) price inflation - especially in the US.
That will potentially see interest rates going higher for some time.
As various commentators from Goldmans and Citi argued, this should be a great enviroment for rising metal prices! Very limited supply growth, restrictive policies in China, concerted growth, and 6-year long underinvestment in new projects should see 2018 and potentially also 2019 as good years for our space.
This morning, metals were pretty weak - but further into the afternoon, metal prices have seen a recovery, and are currently largely unchanged. The strong US$ is also having a negative effect on the metals complex.
New volatility is creping into equity markets today...probably driven by new highs in bonds yields around the world ! Not good...we want things to calm down!!
Prairie Mining - are having a very strong day in Europe, as they are listed in Germany, London as well as Poland. Reason for this is, that PDZ has confirmed early stage talks to JSW, the large , polish coal producer and neighbour in Debiensko, about coperation - whatever that means. Polish newspapers today reported furtehr, that Mittal had met the new Prime Minister in Davos, indicating willingness for additional steel capacity, IF the Polish government would sort out additional coking coal supply.. Prairie paid a few mill $ for Debiensko, which makes it hard for state-controlled JSW to pay a full price for it - the NPV of Debensko is 1.5 bill$! At the time of PDZ buying Debiensko, JSW were in financial trouble, But in 2017 alone, teh company is estimated to have generated 1.1 bill US$ in EBITDA, and should start paying dividends again. Their own share price has gone up 12x from 2 years ago, making it more justifyable to pay a nice price to PDZ. What this price might be? What do you pay for an excellent project - admittedly in Poland, which is perhaps not the greatest jurisdiction, despite being in the EU - which has an NPV of 1.5 bill$?? And even harder for PDZ - what disount will you accept? I think it´s nicer to have a pigoen in in your hand, than a dove on the roof! I would be a happy shareholder, if PDZ would generate an after tax return of 150 mill A$ from Debiensko , which would be approaching 90ct/share! This would leave them with the jan Karski Mine, which has a NPV of 1.8 bill$. It´s nice to have two swords in the fire! And to continue with idioms - where there is smoke, there is fire! "Coperation" could also mean coepration between JSW and PDZ to jointly develope Debiensko....we will find out! Fun ahead, I hope!
West African - announced some very nice infill drilling the other day , which according to management, will increase grades as well as help transferring inferred- to indicated resources. 14m at 39g; 1.5 at 194g; 13 at 5g; 12.5 at 17g; 8.5 at 7g and 1.6 at 26g are certainly exactly the stuff we want to see from them. Like everybody else, WAF are presenting at INDABA - and I have no doubt, that companies will queue for meetings withbthem! There is a big shortage of quality projects, and many mining companies are making good money - Iamgold, B2Gold, St Barbara, Evolution - just to name a few candidates. O.K. - the latter two have not said as yet, that they are looking outside of Australia, but they might have no choice - especially St.Barbara. As you know, a new resource statement coming out late this Quarter, and every 100.000 ounces in additional, indicated resources will increase the valuation by 60-70 Mill A$ or 10-12ct/share.I still have my target of 60-70ct for them by mid year - in form of a takeover, I hope! I bought a few more early this week.
Crusader - came out with their long awaited, Boroborema optimisation study. The NPV8 has been stated at117 mill US or about 150 mill A$. IRR 31% at 1300 gold price, production of 700.000 oz over 10 years. AISC of 908 US$/oz. Not bad at all, especially against a market cap of 22 Mill A$. The only problem is the size - you do not attract a JV-partner for a 700.000 oz mine - but you might attract a buyer, who pays you half of the NPV. The story remains the same: The stock is very undervalued vers it´s potential! But the new management will have to prove itself. The market needs to get more confidence in the new team, before the stock can be re-rated. And I have to admit, that over the last few years, even larger NPV´s have been thrown around in private conversations ( by old management ).
Mineral Resources - this great company has delivered an excellnt half-yearly result today, paying a 29ct div and reconfirming guidance of underlying EBITDA of 500 millA$ this financial year. They are teh world´s largest producer of litium these days from zero not too long agao, and plan to push furtehr downsteam activities. Within this year, tehy awill start construction of a lithium carbonate plant, which distances them from being a pure lithium ore, or spodumene ( 6% lithium ) exporter. Stock had a good run over the last few days - but this is a nice div-spinner, and well worth holding - if you like lithium! JP Morgan came out the other day with a pretty bullish report on lithium.
Have a nice evening!
WS