Market Update

General - Lynas - Paringa - West African - Resolute - Horizon - Pilbara

Good afternoon

consumer confidence getting much weaker in the States - very positive on curent conditions, mut way weaker for the outlook. Housing starts also weaker than expected.

Equities are very strong today, following the recent breather - still, a bit of a surprise, given mediocre economic news.

Metals were trading lower this morning, but the opening of the US market drove them higher - nickel up by 1.4%, as is zinc - only lead is fractionally weaker. Palladium is down by 2% currently.

Lynas - has received a highly conditional takeover bid from Australian conglomerate Wesfarmers - 2,25 A$ in cash - but only, if Lynas can continue to operate with all necessary licenses. A bit of a joke - IF they can keep their operation licenses, the stock will probably trade above 2,25 A$ even without a bid. But certainly interesting - a large corporate is taking a positive view on the business. This in turn triggered some interest for Peak Resources.

Paringa - the saga continues - the authority only gave them permission to truck coal with one vehicle at the time, triggering plans to operate with a conveyor instead. This will delay the first shipment for another month…not a killer - thanks to the new financing - but the market was not happy to see yet another delay! The ventilation work will be finished shortly. The time is getting tighter for delivering all contracted coal this year - further delays might make it necessary for PNL to puchase some coal on the stock market, and deliver into the contract. The sums involved are not that large - and at this stage, the company should be ok anyway. Total contracts for this calendar year are only 1.24 mill t. If they would fall short of say 200.000t, it might cost them 5-6-7-$/t to purchase the coal on spot vs their contracted price.

Resolute - the stock has broken through resistance today. Much like Perseus , the stock is probably being bought as a laggard, despite the usual risks of comissioning a new mine. In their case, the risks are probably even a little higher, because of the nature of mining being used, which is very cost effective, but probably riskier to bring into production than more traditional underground mining. But if it all works, the stocks is probably 20-30% undervalued compared to peers.

West African Resources - the stock also broke resistance today, on very strong turnover of more than 6 mill shares. Here, the risk is mainly the country, as very conventional mining methods will be used. There will also be some speculation in the market as to the updated feasibility study, which is scheduled for release this week or next. The new update should lead to an increase of valuation - probably from around 60ct to something like 70ct. Trading at 34ct, that would offer substantial upside and better than for any other “quality” stock in Australia - but remember, that the mine will onyl be in production mid-2020. I call it quality, as the size of 250.000oz p.a. is unusual, as are the planned production costs of 550 US$/oz - subject to the update study. Burkina Faso, though, has been subject to a few islamist attacs over the last 12 month or so. Up to you, how much discount you want to apply for that! Last but not least, many of the smaller/midsized Australian producers had a good run recently, and the market is on the search for laggards. WAF are certainly a laggard, having not reacted to multiple good news over the last 6 month or so!

Horizon Gold - some ntable hits from their recent exploration program like 15m with 2,33% Zn and 0,27% copper / 78m with 1,3% Zn and 0,32% copper / 35m with 2,4% Zn and 0,43% copper. Interesting - but no more at this stage, as grade appear too low to me for development.

Pilbara Minerals - closed a long planned 50 mill$ share issue to Gangfenf for a Stage 3 expansion of their lithium project, for possible start-up in 2021. Not a done deal as yet - but the scoping study has been promising , with operating costs of only around 300 US$/t vs forecasts of 700-800 US$ for spodumen. Not sure, though, wether the market will be large enough enough by 2021 to take all this product. No doubt, that at some stage it will - but the proejct might be a bit too early. In any case, it offers more optionality to the company, which could use some of the additional product to diversy downstream.

Have a nice evening


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