Market Update

General - Evolution - Northern Star - St Barbara - Strike - Oz Minerals

Good afternoon

while we have no solution to this BREXIT-craze, a continued shut-down in the US, and not much progress really to end the trade war, I am amazed how well equity markets are doing! It´s either a sign of a lot of underlying strength, or a good reason to sell! I fear recent experience tells me, that it´s time to run for cover! You might want to be grateful for the strong markets in 2019 so far, and call it quits for now!

Especially the extended shut-down is calling for caution - I would be very surprised, if we did not see quite an impact on growth for the first Quarter. So if you asked me, and if you are tarding orientated: Sell half your exposure or even more - at least if you are lucky enough to be in very liquid names!!

Metals are a touch stronger - despite a slightly stronger US$. The A$ is reasonable weak - resulting in A$-gold to trade above 1800 again ( 1807 A$/oz ). That could not prevent some pretty heavy profittaking in our top Australian names - and there is also some reason for this:

Evolution - my favourite gold miner finally had a weaker than expected Quarter! Gold production of 182.000 oz at 973 A$ AISC is great by any measure - BUT the previous Quarter was 200.000 oz at below 900 A$ AISC. Full year guidance, though, remains unchanged at 720.000 to 770000 oz at 850-900 A$ AISC - but at the higher end of the cost guidance. Company is very comfortable with the production guidance - the June Quarter especially is expected to be a good one. Their largest mine, Cowal had a problem with the SAG mill, resulting in a 5-day shutdown. Mungari had slightly lower production than expected due to some seismic issues ( that´s a word I do not like to hear ). Mt Carlton had a reasonably positive Quarter - especially in light of a severe rain event: 400mm in 12 hours! That´s nearly as bad as waterboarding in Guantanamo! Mt Rawdon was also a little weakish - while Ernest Henry had a good Quarter, but also lower than in the Sept-Quarter. The Group cash balance increased by nearly 20 mill A$ despite 53 mill$ paid in taxes and 20 mill debt-reduction

Explorationwise, this was another good Quarter, with good progress at Cowal underground ( where the company is confident to delinated a 1 mill oz+ resource ) and Mungari. Especially Cowal should generate more exitement, as a substantial drill programm from surface has been initiated, and the exploration decline has been approved.

The company pointed out, that it´s reserve calculations continue to use an A$ gold price of 1350 only - very conservative, but I think that´s the way it should be!

Overall - no drama - but certainly a little weaker than expected!

Northern Star - they had even less fun than EVN last Quarter! AISC increased quite substantially to 1365 A$/oz AISC - I guess total costs are 200 A$ higher than this, leaving not that much room for free cash. The company has left production guidance for the full year unchanged at 850-900.000 oz, but has increased AISC-guidance to 1200-1300 A$ in Australia, and to around 1400 A$ for the newly aquired Pogo mine. The company claims some increased costs for Pogo due to the implementation of changes there ( which makes sense to me ) , and some deliberate cost increases, as to mining lower grade material at the time of a very high Australian gold price. I am not 100% sure, whether I believe the latter, or whether it´s an excuse to explain a reasonably weak Quarter? In any case, it would show, that the company is not that certain about it´s reserve replacement? A few questions - but as you know, I have been wrongly on the cautious side for a long time, and hence, might be biased…In any case: Not a good Quarter!

St Barbara - also Quarterly out…good Quarter, but finally, grades are coming down at Leonora from previous exceptional levels, resulting in lower production and higher AISC. Simberi als a bit weaker on the cost side - but generally in line with the previous Quarter, which was a very good one. Strong exploration results from Simebri sulphide, increasing the chances of actually doing the capex, which would enable production from the different material. The company could certainyl easily afford it, with a slightly increased cash position of 357 mill A$ ( increase of 7 mill ) despite 46 mill A$ in tax payments. All good here - but also ( as expected ) a Quarter below the previous Quarter .

OZ Minerals - good Quarterly! On the production side, their main operation in Australia doing well in copper as well as gold - the much smaller operation in Brazil not so good - but the company views this one mainly as an exercise to learn about operating in Brazil, and as a hub for much more to come - makes sense to me. If you want to find something negative in the Quarterly: Some of their growth-projects got pushed out. But my impression is, that OZL have a very methodical approach to these things, without being big enough to have all these layers of headoffice, which make things hard. I like their space, and importantly, Carapateena in Australia is doing well - it seems all on budget and time, and this long term producer will start late this year. No doubt - OZL continues to be Australia´s best copper exposure - perhaps not in leverage, but certainly in quality.

Strike Energy - hmmmm..that is problematic! First, re Jaws: The well had a major gas desorption event on 1.1.2019. That´s what we want - but not from nearly zero to skyhigh! The sudden reelase of a large quantity of gas caused probelms…a sand deposit has interrupted the well! The company believes to have this problem in hand - it will take 3 weeks to have the well back in full operation…and it will certainly cost money - 300-500.000 A$.It´s good news, that such a major gas breakout occured - it´s bad news, that this happened so sudden, that the well has been impacted! Ok so much to the usual ups- and downs of gas exploration. The next problem is more unusual: The company expected to get a major reimbursement from the Australian ISA for past Research & Development - this has been ( initially? ) turned down. Commonwealth Bank has loaned STX 5,4 mill A$ in expectation of this reimbursement ( that is very common in Australia, and as you can guess, banks are doing major due diligence as to the validity of R&D work being done. STX will request a review of this decision, and is confident of getting the decision reversed ( I have seen these R&D payments very often in Australia - STX are certainly doing a lot mor R&D than most otehr companies, which have received this . Apparently, the company has ministerial support in this issue. If tehy would not get it, the bad news would be, that STX could not pay for the next well, West Eregulla, and would have to get fresh equity from somebody…or have to sell something! Both would be bad news. I think this R&D issue was the main reason behind yesterday´s fall in share price. Not good. in any case - a never ending story!

have a nice evening


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