Market Update

Resources Conference 2019 Invitation - Strike Energy - Metro Mining - Pilbara Minerals - Resolute - Caravel - Paringa

Good afternoon

so - 2019 has started, and at least it started better, than 2018 ended with a dismal December!

One thing is for sure - 2019 will not be better than 2018, when it comes to developing , small cap resource companies - but that is very cynical, as it cannot get much worse!

But we are looking forward - and to enable you help you making sensible investment decisions, we will have our annual Australian Resources Conference - No 18 , if I count correctly! Amazing! Time is moving like hell ! Please dind the invitation attached, using this link…and please pass on to ther interested investors.

In my opinion, the terrible performance in December was very much an expression of multiple, political uncertainties. The incredible volatility of Trump´s opinion was starting to dent investor confidence quite severely, and upheavel with regards to BREXIt, the French situation, German economic deteriorationand especially the trade war weighed heavily on markets. And gold, for a change , did profit from it!

More recently, though, more dovish FED-comments helped markets, and expectations are now very much for a more muted increase of interest rates in the States - if they increase at all.

Over the last few days, we have had several important, economic numbers : Weak PMI´s around the world, very disappointing factory orders and industrial production in Germany were countered by a very strong jobs report in the US.

But overall, it is very clear, that the world economy is under pressure - the next round of forecasts will incorporate reduced growth expectations!

More promising is the latest round of US-Chinese negotiations. A breakthrough might be needed - otherwise we will move in the wrong direction very quickly again!

A$ gold hit a new all time high of 1840 A$/oz recently, and is currently trading at 1795. Nickel is looking very exciting on the charts - it has boken the 8 month downward channel to the topside and I would not be surprised to see it moving to something like 14.000 US$t - but that would clearly need much more progress in trade talks.

Strike Energy - long standing investor in STX, Tim Goyder, has resigned from the board and has been replaced by Stephen Bizzell, who is representing UIL, which was recently taken over by STX. Bizzell is a very highly regarded oil & gas executive, having been an ED of Arrow Energy ( taken over for 3.5 bill A$ ) and a founder of Bow Energy ( taken over for 550 mill A$ ). Tim has been a good director - but he is much more of a mining guy, and the new director should be positive for Strike. Tim expressed his ongoing commitment to Strike as a significant shareholder.

Metro Mining - MMI announced to ahve erached guidance, with the production of just over 2 millt of bauxite in the first year of operation - despite a 6day , cyclone-related shutdown in december. Guidance for 2019 is 3.5 millt. The company will change to owner mining, once the new season is starting in April. As you might remember, the operation will always clsoe down for the first Quarter, due to very wet wheather in the very North of Australia ( 550 mm of rain in the first 3 month on average ). Owner mining should reduce costs further, as are freight rates, which have been weaker recently - beside the further ramp-up of production. In the emdium term, I am hoping for a margin of 14-15 A$ t in the medium term, resulting in operational cash flow of approx 90 Mill A$ at the expanded mine by 2021/2022, and I guess 13$ margin in 2019 at a production rate of 3.5 mill$ = 45 mill$ cash flow. The market cap is only 214 mill A$. The main risk for MMI is wheather, which always has the risk to shorten operating time from 9 month to 8 month, and marketing of the bauxite. having said this the company had no problem in selling production of 2018 and 2019, and is establishing some excellent relationships with Chinese alumina-smelters. The only problem: The company is now entering the quiet period with no production.

Pilbara - announced financing of Stage II of their lnew lithium mine, with offtake and equity/debt investments by Ganfeng and Great Wall. The company will also increase deliveries from Stage II to the planned hydroxide operation in Korea, in JV with Posco. The agreement shows, that there is ongoing appetite by large users of lithium to enter into longer term off-take agreements with lithium miners, despite the recent, bearish tone in markets. Stage I is still ramping up, making good progress, and achieved record production in December. PLS and MIN are both cheap stocks, and both are moving into the top league of lithium producers from nowhere 2 years ago! If you believe in electrical cars, and I do, both a cheap!!

Resolute - not that surprising, Resolute indicated interest to divest their Australian operation. Some analysts believe, that they could be worth 350 mill A$ - I think that´s optimistic. As reported in December, the new block cave mine at Syama is making good progress, but risks still remain until further progress has been made, and until the fully automated underground mining operation has been achieved. RSG have 62 mill A$ in net debt now - again, about in line with expectations. I think it´s time to accumulate RSG slowly, but surely.

Caravel Minerals - this copper-minnow with a market cap of 10 mill A$ and a large, undeveloped and low-grade copper resource in Western Australia, announced some very positive drilling results the otehr day. The company was testing a new exploration concept to establish an early stage, higher grade initial mining reserve. The first drill holes have been very positive, with 34m at 0,55g and 58m with 0,54g/t vs a resource of 840 millt at 0,34g/t. The results are very promising! There will be a time, when any new copper mine is desepereatly needed, I think - and financing of a smaller, higher grade mine in a very good location would be a lot easier. A pre -feasibility from a few years ago was calling for 15millt annual treatment at 0,26% copper - pre-production capital of 440 mill A$. If those parameter could be changed to say 7 mt p.a. at 0,45% copper for production of approx 30.000t p.a., the project would have a very good chance!

Alliance Resources Partners - this is a good indicator for demand of coal stocks and coal prices in the Illinois Basin, where Paringa should shortly announce first coal production. The stock move by more than 10% in the last few trading sessions ( back to late-Nov levels ), while Paringa is making new lows. Good news of first production should come out definitely this month, which should be greated by the market. PNL are trading at 2x EBITDA currently, using spot of about 44 US$. In the shorter term, earnings will be lower, because of debt-related forward sales at lower prices. But by 2023, the second mine will be in production, making the stock even cheaper. A good time to soak up some stock…

Have a nice evening


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