Market Update

General - Strike Energy - Northern Star - Echo Resources - Tietto - Evolution - Pilbara

Good afternoon

German exports slumped last month…another indication for Germany being in a mild recession for now.

Equities are strong, bonds are, base metals are - the wonder of liquidity! And needless to say these days: There is nothing stopping gold, which is up by 15$ currently!

Strike Energy - what a day for them - and for many of us! The stock has not only found gas at West Erregulla, It has found what the MD calls a “truly exceptional outcome”. The well has “exceeded Strike´s highest expectations and indicate a significant discovery that appears to have higher reservoir quality than the Waitsia gas field”. Waitsia was owned by AWE Ltd and led to a protracted takeover-fight, in which several companies were involved. Some back-on-the-envelope calculations are already talking 1.7 Tcf potential - perhaps a little early to say - but a figure like that would imply significantly higher share prices for STX and JV-partner WGO! Also, Strike had secured a substantial acreage position in the Perth Basin, which has definitely increased in value because of the find. Waitsia had been the best onshore well in Australia drilled in 40 years - this one could be better! It´s also one of the deepest wells ever drilled onshore Australia, and will change the perception of the Perth Basin. Previously, gas companies had assumed, that gas reservoirs as deep as this one - about 5.000m - would not have sufficient porosity, and therefore, were deemed to be uncommercial. Takeover rumors are already flying - Beach Petroleum ( cash rich 5 bill$-company ) and Mineral Resources ( which lost in the takeoverbattle for AWE to Mitsui ) have been mentioned - I guess Mitsui would also be interested. I would not even rule out Woodside, given the potential size of the discovery and their dominant position in offshore gas in Western Australia - and Fortescue is always on the hunt for large projects, and has shown interest in gas before. At least 5 potential bidders with deep pockets - what a beauty!!!!!!!

This is clearly a major gas find, which has the potential to change the entire West Australian gas landscape! Congratulations go to Tim Goyder, who I believe brought them the deal, the MD Stuart Nicholls, who firstly grabbed the opportunity against many sceptics, and executed superbly with his team on a technically challenging program!!

My fund is a very substantial shareholder and has been for many many years - you can be assured, that I will not exit Strike, before the potential has been further defined! I admit of having been lucky here - but it shows again, that you need to back good people in this business! They always get at least two chances,a and sometimes even more than that!

Tietto - I am very surprised, that the stock did not move today! Goode xploration results from their 100% owned Abujar project in Ivory Coast like 73m with 2,8g from 218 m ( incl 17m with 8,8g gold/t ) and 8m with 3.5g from 241m as part of the current 30.000m program are certainly positive. Total strike length is 1.4km, and teh resource so far contains 1.06 mill oz gold at average grade of 2.1g/t.

Echo Resources - got the awaited takeover bid from Northern Star at 0,33 A$ = about 225 mill A$. NST already control 21% - I would therefor be very surprised to see another bidder. It´s also very close to NST´s assets in WA. The bid values resources at about 130 A$/oz, which is very high - but EAR also have substantial infrastructur in place like a processing plant ( no idea what the cost of refurbishment would be ) - I have red the figure of 40 Mill A$. NST also own some 60.000 oz of open-pit material close by. Perhaps not a bargain - but it gives good exploration upside, and some flexibility to Northern Star. In any case - 230 mill A$ fresh cash for a sector, which is on fire already! 144 mill shares traded today - so nearly 50 mill$ looking for a new home!

Northern Star - result out today…I think it´s not unexpected, that like most of the other, larger producers, NST also struggle to exhibit value at current levels. Cost pressures, albeit mild, are evident for just about every producer. Northern Star is doing an absolutely fabulous job with regards to productivity - still, not easy to keep costs down. With AISC of 1200-1300 A$ guided, the higher gold price will do wonders for NST. True costs will probably be around 1550-1650 A$ - hence the recent jump in the gold price from about 1900 A$/oz to above 2200 A$/oz will nearly double their margin! Very nice indeed - but probably not good enough to justify a 7.5 billA$ market cap? Pogo is shaping up to be a great aquisition: on the exploration front, their seems to be substantial upside from an already significantly increased resource. It remains to be seen, whether NST will eb able to come close to Australian levels of productivity. From what I have heard from them, they seem to be doing all the right things ( well, I should really not judge on this - I am a farmer and not a miner!! ). Pogo might be the key to halfway justify their share price - otehrwise, they will just run with the gold price.

Evolution - reported their result during my holidays. 500 mill A$ in net mine cash flow ( which in my eyes, is the key-figure to watch ) are a great number….still, the market cap of about 8.5 bill ia as well! The main difference to NST is the significantly lower cost base and hence the sustainability of their production throughout the cycle - and the company is also less agressively managed than NST. Jake is continuing to point out, that EVN will only do aquisitions, which are accretive to shareholder value, and to asset quality. But as the share price continues ( generally ) to move higher, the pressure will increase to do an aquisition - either EVN will have to look at targets outside of North America and Australia, or they will have to pay up! Alternatively, they can take a view and buy at an earlier stage? Bellevue comes to my mind…not the cheapest aquisition, but if you include some upside from exploration, it will probably turn out to be cheap eventually!? The result was a good one and included no surprises - the hike in diividens had been flagged before as well. Strong exploration spending will probably assure some production growth at Cowal - but I think this is well anticipated by the market now, unless EVN can push this asset substantially above 300.000 oz p.a. because of replacing lower grade material from open pit, with high grades from underground. Nothing in the result , though, which makes me very bullish from current levels - but also confirming EVN´s status as the premeir, Australian gold producer, in my opinion!

Pilbara - Macquarie could not find a buyer for a minority holding in Pilgangoora at a sufficient price! The company stresses, that interst has been received at levels higher than the current, relatively low market cap. Still - a disppointment for sharehodlers, I am sure, and also for other lithium producers. So far the story had been, that there was limited inevstor interest, but still very strong corporate interest in top-class lithium assets! The good news for the lithium market is now, that the Stage 2 expansion will happen much slower, and the Stage 3 expansion has been entirely scrapped for now. I fear no reason to own PLS in the moment!

Have a nice evening!


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