Market Update

General - Nickel, again - Metro Mining - Panoramic - Breaker - St Barbara - Heron

Good afternoon

impeachment is gathering some pace in the US…incredible all these stories, which come to the daylight! They give a great view of the dirty stuff happening behind the scenes of international politics….Not really a surprise, I guess - but nevertheless, when you see them…still astounding…Financial markets seem to be completely unperturbed by all this stuff…the US market recovered quite nicely yesterday, while Europe did not do all that much in the absence of Germany, which had a public holiday.

The only weakness today is in the US$…metals are looking ok, gold is slightly stronger, not much action in bonds - this is before the labor numbers in the US. New jobs came out slightly weaker than expected, average weekly earnings as well. But looking at markets incl gold, some must have been going for even weaker numbers! as the day progresses, equities are gaining some upward momentum.

Nickel tightness for cash delivery seems to be quite extraordinary. Another record draw-down of 7700t from LME stocks today, following a 7.000t fall yesterday , a to a new 6-year low today ( just 133.000t left ). Bloomberg is reporting about a bit of buyer-panic, in light of the upcoming Indonesian export ban for nickel ore from 1.1.2020. The backwardation is at it´s highest since the lofty days of 2007! Prices are up by another 1% today - not sure, how sustainable they will be, in light of world growth slowing down heavily in the moment!?

Gold ETF´s see their 14th, consecutive inflow! No surprise, that gold is looking very solid!

Metro Mining - quick production update yesterday, ahead of the detailed Quarterly later this month. This not so little thing is going absolutely gangbusters! July and August had been good month, with 443.000 and 476.000t resp. produced and about the same shipped - September shot the lights out with a record 501.000t , for a total of 2.3 millt for this year so far. The guidance is for 3.3-3.5 millt this calendar year. The mine will close down by about Christmas for the wet season, until about the end of March - so we will have about 2.6 month left to go. Even if I assume, that December will be a little lower ( as we might have the first wet days in that month ), it should be very easy to get to the top of the guided range, and very probably, higher…

In the June Quarter, the mine produced an onsite-EBITDA ( i.e. before headoffice costs ) of 9.1 mill A$ ( that was on production of 880.000t only ). The Quarter just ended has produced 1.420.000t…but we do not know price received as yet ( which should be ok ) , nor shipping rates ( all this will be contained in the Quarterly ). But in any case, I would expect record EBITDA from the mine, which should result in MMI being net-cash positive for the first time . One thing to note here: There will be no production / shipments in the first Quarter as usual, which might bring them back slightly to net-negative cash…but that remains to be seen.

The EBITDA margin in the June Quarter has been just under 11 A$/t….whatever prices received will be for the Quarter just ended, mine operating costs will have been much lower, given the great numbers as above.

Just imagine, how profitable MMI will be, once the expansion to 6 millt pa ( from the current 3.5 millt ) will allow them to load larger ships, which in itself should cut shipping costs by 4-5$/t, before any economies of scale!

MMI already is a great little cash machine now, and will be generating unusual levels of cash, once the expansioin has been completed in 2021. The only missing piece of the puzzle is the delivery of the final feasibility study, and the financing of the expansion. I am assuming, that it will be done easily with the banks - but the share price tells me, that the market wants to see this as a fact, before a probable re-rating of the stock should occur. I think Metro Mining are a highly unusual opportunity to make some money, and I have consistently increased my postions. Sorry, that the comment sounds a bit pushy - but I am convinced!

Breaker Resources - they have put themselves on the market! Corporate and strategic review, with all options open! Well - in reality, probably most options - as Tom Sanders is a big believer in his story and the ceredentials of his ore body, I think anything else but full value will not be enough for him to sell his baby! But what could happen, in my opinion, is a large placement to an incoming strategic or ,more probable, corporate investor, at a good placement price . Breaker would face the enxt placement in the not too distant future - and most probably, at a discount again. These placements are a constant drag on performance, and it might make more sense, to sell part of the house for say 15 mill$ in exploration funds, and limit the upside ( as such a move would pretty much remove competitive tension in any takeover for the company). This assumes, that exploration would deliver increased esources - but I think the past of the company has shown, that the gold is there - but complexity needs a lot of drilling to fully evaluate this interesting asset. I would be supportive of a large placement to a corporate - in any such move, shareholders would have to approve the placement!

Panoramic - the Chairman, Brian Phillips, announced his intention to step down at the AGM on the 4th of November, following 12 years on PAN´s board. Most of you have met Brian - an absolute gentleman, and a very experienced miner, with a distinctive career. Him and Peter Harold have run the ship together for a long time, and it´s no surprise, that the pair is leaving at about the same time. I would not be surprised to see them pop up together once again, at some stage! But for now, the job remains for Peter Harold, to properly start production from Savannah North, before he leaves his baby! In any case - a shame to see Brain leaving - but do not expect company issues to be the reason!

St Barbara - a weak Quarterly production update pretty much across the board! Gwalia produced only 38.100 oz of gold - limited by the ongoing Gwalia Extension Project, which is competing for ventilation with mining of the orebody, and lower grades. Simberi saw lower grades this Quarter as well, and the newly aquired assets of Atlantic Gold performed more or less in line with ( not so strong ) expectations. The stock remains under pressure - and while they have come down from a lofty 5$ in Feb to the current 2,75 A$, I still think it´s too early to revisite them. IF they don´t turn around Gwalia again, the capex for Atlantic Gold over the next two years or so might become a burden…

Heron Resources - following a long suspension, the company will now be recapitalised…at a big cost. Three private equity funds, who have been the largest shareholders as wella s creditors already, are taking the lead of the 91 mill A$ funding package…at a substantial cost. Their convertible bonds will carry at least 15% interest, with 2% upfront free, and convertible only at a 25% premium to the price other shareholders will eb able to subscribe new shares at. That´s pretty insane - but I guess it also shows the risks involved. The start-up of this new mine ran into massive problems, incl a large claim of the construction company for overruns. Not sure, who is to blame here - I am not close enough. Not being a shareholder, there is absolutely no need to get involved! HRR will need a long time to trade themselves out of this debt-trap! Shows you again, that you need to structure debt with private equity investors very well, otherwise they can get you by the feet!

Have a nice weekend


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