Market Update

General - Breaker Resources -Lynas Corp - Metro Mining

Good afternoon

Factory Orders in germany are falling again, while manufacturing numbers in the US yesterday as well as labor market numbers today have been strong!

Metals managed to rebound somewhat today, especially copper. I guess sentiment in the physicals was positively influenced by the Chinese takeover bid for copper/zinc miner Nevsun Resources, which seems to be a very strong bid at prices equivalent to a seven-year high, and following on from two earlier bids by Lundin Mining.

But overall, US-politics and emerging market wobbles continue to depress risk appetite!

Breaker Resources - announced some nice drilling results the other day ( incl 45m with 2,14g / 4with 13g and 12m with 2,44g / 6m with 4,3g and 5m with 3,7g ), but more importantly, an excellent resource upgrade today: 1.084 mill oz at average grade of 1,4g gold/t represents an improvement of 74% vs the maiden ( disappointing ) resource from April 2018, at a cut-off grade of 0,5g. Using a cut-off grade of 1g, the resource is still pretty strong at 808.000oz at average grade of 2g. 58% of the resource is in the indicated category. The company sees an exploration target of additional 1.2-1.4 mill oz from underground, and the resource is also open along strike. This is the kind of resource the market would have hoped for back in April - when Breaker was trading at 55ct! This is double todays price...and is showing you, in what dire mood the market is in. The stock had a strong move today, up by 20% to 28ct - still, that should be cheap. The only, and not insignificant negative in this market: My October or so, the company needs fresh funds to continue with the very agressive drilling program ( they are spending a massive 3 mill$/Quarter on exploration ). I will be meeting with management next week.

Lynas - the company reported a very strong result - 53 mill A$ net profit , EBITDA of 127 mill A$. Nevertheless, that was below some high expectations. One thing is for sure, though: management has overseen a very significant turnaround over the last few years, have built a safe and consistent operation, which is the world market leader - definitely outside of China - of sustainnable rare earth production. As such, the company should deserve a strong rating - also in light of the dramatically improved balance sheet. However, the press in Malaysia has reported about a new , parliamentary enquiry into Lynas´s operation. Formally, such an enquiry does not exist in the moment, and Lynas would be very happy to comply with any such review, and is very confident of doing evrything right. But you might remember, how difficult the approval process has been a few years ago, and once in a while, the company needs renewed approvals. This is certainly a major risk here...IF the Malysian authorities would make life hard for Lynas, or even put the operation into doubt, Rare Earth prices would go through the roof. I am not saying, that this is going to happen - it would be major bad news for the nascent, electric vehicle sector, and would be bad news for Malaysia in my opinion as well.

Metro Mining - the company is doing everything right - yet the market in resources stocks is so bad, that these stocks hardly react! MMI have started a completely new bauxite mine in the very North of Australia a few month ago, as you might remember. They have had a few minor issues very early in the operation, mainly driven by an extended wet season. But ever since they raised the additional ( and probably unnecessary equity ) at 22ct , to raise 17 mill$, everything has been going very well: beside the usual start-up risks of a new mine, the main risks here have been for MMI to be able to sell all bauxite mined. Both issues have been adressed: shipping and mining is going well enough for the company to re-affirm this years target of 2 millt of bauxite. 5 different off-takers - all of them Chinese - have now comitetd to 100% of this years production, and teh feedback has been so strong, that the risk of being able to sell all ( increased ) 2019-production appears minimal. Again on the positive side, Alumina prices are very strong - and stronger than expected - resulting in the majority of MMI´s bauxite attracting higher than expected prices. 

So , all is going very well here...except for the share price. I believe, that the company is currently shipping at record rates, and at excellent prices, which should result in significant cash flow of something like 4 mill$ per month. Big funds like BlackRock ( holder of 10% ) are supporting this company, and so should you! Cheap! in 3 years time, this company will produce 6 millt vs 3 millt of bauxite next year...expansion financed entirely out of cash/cash flow. At the increased rate, the stock is probably trading at only 3x free cash flow and should be worth something like 7x free cash flow, in my opinion.

have a nice evening!