Market Update

General - Paringa - Panoramic - Technology Metals - Crusader

Good afternoon

some profit-taking in equities ahead of the FED statement….German stocks hit especially hard, with Bayer very weak following court case in the US and BMW not having a lot of fun in the moment, depressing automobile stocks. Also, Deutsche Bank/ Commerzbank saga not helping…Does Germany really need a banking behemoth, given EU has a few? I am undecided here…1 bad bank + 1 bad bank might actually result in one reasonable bank, given a reported 30.000 jobs can be culled….In any case, you don´t want to own too much property in Frankfurt!!

Base metals looking good again - copper only unchanged, while nickel and especially zinc continue to run. While platinum/palladium combined price at record highs again, iron ore much weaker today. Vale has received a positive court verdict on one of the closed mines, but needs to go through approval process again - unclear, how long this could take.

Technology Metals - macquarie the other day initiated coverage of vanadium, and expects a deficit for the next few years - but also sees the current price of 16.50 US$ for 98% material as vulnerable. Expect the price to trade between 10- and 14 US$ for teh enxt few years, on demand increase by Chinese steel industry. TMT have used 13 US$ in their recent pre-feasibility study, which does not look unreasonable. On that basis, the PFS arrived at a NPV10 of 850 mill A$ for their project, IRR of 43%. The problem: 380 mill A$ in capital costs are a big call! Since the PFS has been announced, teh A$ is down by about 6%, improving the metrics somewhat. Not an easy project to get off the ground - it all depends on potential partners , and what they are willing to pay! In my opinion, Macquarie might be a bit conservative in their assumptions - the wild card could be the use of vanadium in battery-storage. I have a small foot in the door here.

Paringa - the rumored financing got announced today: 56 Mill US$ at Prime Rate + 7,5%…financing has got it´s price, but is not unreasonable. The company should be well financed now - a little bit of due diligence left to do as well, but should be ok. The only thing which makes me slightly nervous: The company has not provided us with a firm time table for being in full production. I trust the debt provider, debt fund Tribeca, have done their due diligence here. The financing will also assist with capex for the second mine, Cypress, to be brought on stream in 3 years time. I need to do some work here - but I think the stock is cheap…certainly worth holding, if you have some - and if you can stomache to hold a coal stock!

Panoramic - the current 1:13 rights issue, following on from the small placement at 38ct, is depressing the market, as usual. Great buying opportunity, in my opinion, and privately, I am buying a few more. As reported, the company has had a few issues to bring Savannah back on stream - none of which were substantial problems, but a serious of small issues added up - hence the additional fund raising. Most of these issues had been resolved by the time of the placement 10 days ago. The biggest issue with PAN probably is, that serious production will start, once the new ore body, Savannah North, will be in production by approx year end. There is also risk for another small delay in time, given the fact, that a vent shaft has to be drilled, which is a lengthy process and which has some risk of time overruns. But again - we are talking a risk of 6 weeks delay or so - and currently, there is no indication for such a delay. The market is not only crying for more sulphide nickel for the use in batteries, but also for another pure nickel producer, as Western Areas as well as Independance have been serial disappointments. Also, the Nova Mine, operated by IGO, will cease production in 2025….

At 10% higher nickel prices in 2021, PAN should generate 100 mill A$ in EBITDA….and such a company should trade at say 4x EV/EBITDA…which could equal a market cap of 400-450 mill A$ vs the current 200 mill A$.

The wild card remains the Panton Palladium/Platinum project. I had a look at old announcements from 2012, when the previous owner completed a review of an old feasibility study on this project, which I believe to be the largest PGM-resource in Australia. The NPV then was only 25-40 mill A$, but since then, the combined PGM-price has improved by 25% - helped by the fact, that the resource holds 10% more Palladium then platinum. Cash operating costs back then were estimated to be 880 A$/oz - todays combined price of 1.1x palladium + 1x platinum / 2 is approx 1845 A$/oz . That should improve the margin by more than 50% from 600 A$/oz back in 2012 to 970 A$/oz today. Hard to say, what the project costs today would be vs 2012 - I guess no big change, as 2011/2012 have been boom years in mining capex? It might well be - as I wrote before - that this project will be worth 100 mill A$ in it´s own right a bit further down the track.

You will be well aware of supply/demand issues for nickel in light of strongly rising production of EV´s. Nickel has seen a few years of higher demand than supply , and this should continue going forward. It´s not unconceivable to have 20-30-40% higher nickel prices in a few years time.

I think the current weakness in the share price is purely technical, and should be seen as an unusual buying opportunity. You will be well aware, that I have a substantial interest in the stock…

Crusader - the company continues to disappoint…they have sold Juruena for 1 mill$ cash, 500.000$ worth of shares, and - conditional on more resources and a decision to mine - another 1.5 mill A$. Even in light of Brazil being a difficult place to operate in these days, I think the price is disappointing. CAS also announced, that 3.5 mill of the planned 4.2 mill A$ rights issue at 1ct are now underwritten. All of the above guarantees the immediate future of the company - but not much more! Still - at 1ct with a free option at 2ct, and older valuations of + 100 mill A$ for the Borborema gold deposit ( which would be about 10x the increased market cap post rights issue ) I think this stock is worth a punt. Don´t get me wrong - I am not really getting behind this company - too many mad moves over the years - but if you are a shareholder, you should probably protect your investment.

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