Market Update

General - Rundown Australian Resources Conference 2019

Good afternoon

The M&A game is full on now….Barrick publicly toying with the idea, to take out Newmont. These guys are completely crazy, in my opinion. Yes, we need investable gold miners - we really need mega-companies? I think these things are very hard to run, and even harder to grow!! And as teh day progresses, these maniacs are making a hostile bid ! all paper…..

palladium/Platinum continue to race…another new all time high in A$, and very high historically in US$ terms. Base metals marching ahead, still - as are equities. Chinese equities now up by 27% in US$ terms this year! Trade war a flash in the pan? I do not think so - even though it looks like negotiations are progressing well, the current round of negotiations will not be the end of it.

One thing is for sure: We are currently seeing a surprisingly strong deterioration of economic activity across the world. Funny, though, that US-bonds are not any stronger…some inflationary expectations finally creeping into markets?

On Friday, we hosted what we believe was the 17th Australian Resources Conference in Zurich. Thanks a lot for all attendees to come along and listen resp. present! I thinkw e have had a great set of companies from different sectors and of different size, presenting a good round-up of commodity markets. Without praising ourselves, I think the quality of companies presenting has been pretty outstanding!

A very quick run-down:

Cassini Resources - a newcomer to the conference, I liked this story! Cassini in JV with Oz Minerals, who are top-class operators. OZL are earning into 70% of the project, which contains 283 millt grading 0,36% nickel and 0,39% copper + some cobalt, with significant upside. Morgan Stanley have valued this deposit at 420 mill A$ ( 100% ) , having applied a 50% reduction for development risk. This is shaping up to be a large project - and indications are, that OZL will be happy to assist significantly in financing CZI´s 30% of the project into production. The pre-feasibility study will be finished in the early summer. OZL´s preference would be not do a full bankable feasibility study, saving time as well as money - but I think CZS will only agree to that, if Oz Minerals will arrange at least a huge part of the junior partner´s financing. Often, investors do not like to invest in a minority partner of a project - but IGO and their 30% of Tropicana are a good example of this being a good thing, when the JV-partner is strong and hence, financing is made a lot easier. Using MS´s valuation for the project, Cassini could ultimately be worth a multiple of todays price - especially, if one agrees to strong nickel/copper prices in a few years time. The MD came across very well. Good stock for base metal fans, to be accumulated before the pre-feasibility study comes out in a few month time.

Panoramic - the usual, slick presentation from MD Peter Harold. Ramp-up of the substantially refurbished plant took a little longer than expected. Not easy to find necessary employees - especially miners. Wheather did not help either. However, first shipment sailed in mid-February. Cash is a little tight, as simultaneously with mining the old ore-body, the company is developing access to the new Savannah North ore body, on which the feasibility study has been based. Production for 8 years + from North, starting around year end. Costs will be much improved, due to better grades and higher payment terms from the smelter for the highly sought-after concentrate with little impurities. Some activity coming back to 51%-owned Horizon Gold, and a lot of interest in the Platin/Palladium assets in Australia and Canada ( which in my opinion, are dramatically undervlaued ). For me, a great stock for patient investors to run the nickel/copper-battery story over the next few years! At 10 US$ for nickel ( that is what some analysts are expecting for 2022-2023 ) the pre-tax NPV of PAN is 870 mill A$ vs current enterprise value of 250 mill A$ - not valuing anything but Savannah .

Metro Mining - good presentation from CFO Duane Woodbury ( MD on marketing trip in China ) . what a disappointment they are! But only, when it comes to the share price! Operationally, the company has actually over-delivered, and the current year will see a big uplift form just over 2 millt of bauxite in 2018 to 3.5 millt . Very important: The company has made big progress with Chinese customers, and stage 2 of the project, which will be in production in 2021, will make this company a huge cash generator. The updated feasibility study for the expansion is in progress and should be out late in the 2nd Quarter 2019. So watch this space - I would expect MMI to announce some more offtake agreements prior to teh development, and importantly, economies of scale should also improve margins. A large part of costs is transport - with little impact from MMI on the pricing of it. The bauxite market is looking very strong, with large increase of Chinese buying every year, as aluminium production continues to rise, and local production of bauxite is under downward pressure. Even based on this years production of 3.5 millt, I would expect margins to rise - and at say a 11$ margin/t, cash flow should be close to 40 mill$. At full production in 2012, cash flow should exceed 70 mill$ p.a. - without any more equity needed to get there. The share price ( market cap of 180 mill A$ ) is a joke…

Breaker Resources - MD Tom Sanders continues to be a BIG believer - and he transpires this! Not everybody liked the presentation - I did. I think Tom painted a convincing picture of rising resources and rising confidence in the resource.quality. Wherever they drilled, they have been able to increase resources! Quite remarkable - and I believe the next resource increase in April/May will show this. There is potential in all directions, as well as underground. Equally important: metallurgical results so far have been outstanding as well, pointing to very reasonable production costs. Analysts believe, that this project has 2 mill oz in resources as next step written all over it - but this should not be the end! I think there might have been some corporate interest in BRB already - but the large shareholding of the MD will shy corporate palyers away at this stage, as Tom believes, that he shoudl add a lot more value to it, before potentially handing over development of the project to a larger player. There are not many projects in Australia, which might be able a 10-year + mine life - Lake Roe could/should be one!

Antipa Minerals - Executive Chairman Steven Power presented a company which as a massive ground position in Australia´s hottest exploration province, the Paterson Province. They have a resource of 723.000 oz at 2g gold and some copper/cobalt at Minayari Dome, which could be of interest to nearby Telfer, which is a very large deposit mined by Newcrest, running out of reserves ina few years time. For me, the hottest area they are holding is just a few km away from Winu, which is a copper discovery by RIO - rumoured to be the largest copper find in Australia in 25 years. RIO is operating a 50-person exploration camp there, is building an air strip for 10 mill A$ or so, and is building raods…a large commitment. RIO never has published anything, but the rumour is, that something is imminent. RIO is paying up to 60 mill A$ in exploration to gain 70% of the ground, held in JV with Antipa. This is real elephant country, and I have no doubt, that RIO have found something very unusual at Winu. Speculative interest in the entire are could sky-rocket - it all depends on exactly what RIO have found here, and when it will be made public. AZY have consolidated for a while, and I think it´s excellent time to accumulate a position.

Graphex - a pretty technical, but excelelnt presentation by MD Phil Hoskins. Their graphite deposit is first class, and the nature of it makes it very interesting for Chinese building material producers. Phil has done a huge amount of groundwork with Chinese, potential offtakers. What is needed here is firm wording from the Tnzanian government, to enable fianncing of the project. The tax- and legal framework is pretty clear in theory - but obviously, to get the planned 80 mill US$ financing with Castlelake a large PE fund, off the ground, hard facts in writing are essential. A big stumbling block has been the well documented preblem between Acacia/Barrick, and the Tanzanian government. It looks like very substantial progress has been made here last week, whcih should result in a full agreement very shortly. That could well be a trigger for Graphex and other mine-developers in the country. The fundamentals of Graphex´s Chilalo project appear to be outstanding to me: Excellent product quality, IRR of 131% ( !! ) , NPV of about 500 mill A$ vs market cap of 15 Mill A$ - and a very major part of the financing already bedded down. Beside of the debt- and equity financing from Castlelake, GPX will also raise a very limit amount of equity from existing shareholders ( and perhaps one more cornerstone ), limited at 28ct by agreement with Castlelake. The price of it is currently holding back investor interest , as teh stock is trading at 25ct. But the market could find, that only existing shareholders will be able toparticipate. I believe and hope, that this will drive the share price in the shorter term. The next , large trigger will be progress with Tanzanian government, and/ or results of the bankable feasibility study, which is expected to largely confirm the PFS.

Liontown Resources - CEO david Richards presented a company, which has just completed an 8 mill$ capital raising and for the first time in recent history, has sufficient funds to materially drive forward it´s two lithium projects. LTR have an unsual, very senior board for such a small company, and the quality of it´s main project, Kathleen Valley, looks very strong. LTR have a couple of advantages: Excellent board, and they are not first movers! basically all of the early hard-rock lithium projects now in operation, ahve experienced substantial problems. Mainly metallurgical work has been underestimated, and recoveries of lithium concentrate ( spodumene ) have been way lower than planned. This kind of problem should not come up for the second round of movers, learning from others´mistakes. And Albemarle, the world market leader in lithium, made their view very clear the other day, that the market in lithium will be much tighter than many people believe. I think we will hear a lot more of them in the next couple of month, and market timing should be a good one now!

Technology Metals - the company probably represents Austrailia´s best vanadium story. MD ian Prentice presented a story, The company last year finished a PFS, which estimated very competitive costs of 4,27 US$/lb in cash operating costs for the production of 13.000t of Vandium ( V2O5) p.a.. Capital costs of an estimated 380 mill A$ sound a lot for a small company - but i think with further enhancement and progress, TMT might not go this alone. At 13$ for Vandium ( current price is 17,50 US$ ), the NPV is around 850 mill A$ post tax. This is a more speculative investment - but they have enough cash now to finish the bankable feasibility, which will be published in July/August of this year. A lot of hard work has been done - I think the BFS should see a positive outcome and could be the trigegr for some share price strength. I think investors should concentrate here on demand from the steel industry for vanadium, which strengthens steel and which sees strongly rising demand in China especially, where the regulator is asking steel producers to improve their product quality. Their might be a market for vanadium in batteries - but that part of the market to me looks like a side story.

Evolution - it´s always great to see presentations of Jake Klein. He always tends to concentrate on the big issues, and so he did this time. Of the top 20 gold miners in the world, EVN have the second-lowest costs behind Kirkland, with less than 650 US$ AISC this year. The company continues to use an A$ gold price of 1350 A$/oz for reserve calculations and mine plans, to ensure, that profitability remains high, and not to be caught out in a downturn. Jake made pretty clear his dislike for the current merger mania, but also looks out for aquisitions in Australia and North America - but contrary to others, with a strong value-bias - rather than growth for growth´sake. In the presentation he made some comment with regards to Mungari, along the lines, that the area surrounding the mine had not lived up to expectations as yet. In light of this, interesting to see todays move: EVN bought 19.9% of gold miner Tribune, which is a JV partner in Northern Star´s East Kundana JV. The assets are immediately adjacent to Mungari. Will be interesting to see, what EVN are planning to do here - one thing is assured: The 19.9% stake in Tribune alone does not make any sense. Jake did not make a secret out of his doubts as to the merits of the current merger mania in the sector. From Evolution, we can expect more of the same: Strong cost management, improvement of asset quality, transparency, and dividends! In my opinion, and as you know, Evolution is the ebst, Australian gold mining company - and Cowal has the potential for some exciting exploration news during the year.

Genex Power - the share price has not moved really from last year, but the company has made big progress. Financing terms have generally been establishd with Energy Australia, a very large retailer, to form a 50:50 JV, and EA to sign a very long term ( 30 years ) off-take agreement. Much remains confidential at this stage, and is essential to value the company. But i am expecting an agreement for the power transmission, and a fixed agreement with EA for this half. Obviously, the company had to be a bit shy at this stage to give us real numbers . those will be the trigger for a much betetr share price. The company has indicated, hat a very limited equity raising will have to be done, raising I guess 15-20 mill A$. That should be a done deal, if we get more numbers to work with! Overall - it took a bit longer than expected ( as always!! ) , but Genex is doing well and 2019 shoudl be a big year for them!!

Bellevue Gold - Steve Parsons with a very confident presentation. The comnpany had just raised 20 mill A$ from Australian and North American, institutional investors. The company has now about 28 mill A$ in cash - enough to even accelerate current drilling as well as potentially dewater the open pit. They are spending an estimated 2 Mill$/month on drilling! The next resource upgarde therefor is just 3-4 month away. I have seen targets of 1.7 mill oz - but I think in the back of their mind investors have the number 2 mill! I think the famous Vilago Lode, currently carrying an estimate of 500.000t with 22g and not closed off so far , will be the key here. If they can prove up extensions, another few hundred thousand oz shoudl not be that hard to achieve. If the presenters confidence is any guidance, we will see that! I think a few attendees might have been buying stock today! Grade is king - and since the unbelievable success of Kirkland Gold, it´s even more so in the mind of investors. Compelling is, that only a relatively small plant and therfor very limited capex seems necessary to produce say 150.000 oz p.a. - this, and the closeness to existing operations of St Barbara and Saracen are making this a very sexy project. No doubt, that more drilling for increased confidence in the resource is wanted - but 2 Mill$ drilling/month should go a long way!

have a nice evening



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