Good afternoon
This is from yesterday—-today at the bottom….
hmmm where to from here? We have had a great move in equities - but there are many problems remaining or in sight. To name a few:
- Covid is far from over
- We might face a Republican Senate, which would potentially block a new stimulus program
- We might even have the Democrats conquering the senate, to complete the Blue wave - not good, either
- The strength of a recovery in 2021 is not certain
- Interest rates seem to be rising
- Inflationary pressure could/should emerge
I am sure there are many others…all I want to say is, that there is substantial risk to these markets, still! And vice versa, there are still many reasons to own gold!!! And possibly, base metals…
Teranga Gold - are in discussions to be taken over by Endeavour! Apparently, EDV are considering to offer paper only at a small premium to the current price of Teranga. I think this would certainly improve financial parameters of Endeavour ( using Bloomberg consenus for both companies ). I am not sure about measures like resources- or reserves/market cap, mine life etc. But it would certainly create a relatively large company with activities soleley in various Western African nations, and across many mines. Given recent share price history of Northern Star, I think the market likes large companies…so it would probably be a move greeted by the market with enthusiasm, if and when it becomes more definite. At this stage, they stress, nothing has been done and in the poast, EDV have niot been shy to call something off, if it did not go their way! It might well have repercussion for valuations in otehr Western African companies, like West African Resources, Perseus, Resolute or others. All these names appear cheaper than Teranga to me on financial metrics.
Saturn Metals - was one of the very few gold stocks going higher last night - even though on low turnover. The company has announced another set of drilling results - pretty positive, but grades indicate more of the same as the current resource ( 1g ). Ove rthe last few month, STN have released many good results, and I have no doubt, that the enxt resource eincerase will be a positive one. But whether it´s time to buy a low-grade developer in the moment, as the gold price is under a little bit of pressure? I much prefer something like Apollo Consolidated - they have 20% higher grades, a 20% larger resource ( and the next estimate will also be up ), but 40% less EV, if I include the worth of the royalty they own )! So I fear only a hold for Saturn!
Today, equity markets are trending higher again…cash, which has been waiting on the sidelines pending the outcome of US elections, is still looking for a home! there has been a big shift to value and also cyclicals over the last few days, which should also benefit resources stocks.
Generally, I am seeing a good time for us ahead: Metals have been holding very nicely this year. Even when taking some corona-related suppyl disruptions into account, a probably strong rebound of growth next year should see the sector in good demand! This probably includes iron ore and lithium - not only the base metals.
By early afternoon, base metals are unchanged today, while gold is falling slightly, partially because of a strengthening US$. Bonds seem to make a pause from the recent sell-off. oil is continuing it´s run…Brent up another 2% currently to 44.56 US$, testing it´s highest level since Covid hit
Bellevue - you know, that I have been cautious on BGL recently for valuation-reasons…today, my view has been confirmed, in my opinion - though not in the markets opinion!! The company is- and has been conducting a massive exploration program. Today´s resource increase - 20% increase in indicated to 2.82 Mt at 11,4 g gold for 1,04 Mill oz and a 7% increase in inferred ( in which the indicated is included ) to 7,46 Mt at 10g for 2,41 Mill oz in my opinion is disappointing for a company with an EV of more than 1 bill A$ and spending massively month for month on drilling! Yes - grades are fantastic - but for example, a company like WAF have 650.000oz at 10,2g in Probable Reserves underground, and 1 mill oz in Probable Reserves at 1,6g open pit - plus Toega…..It remains to be seen, what percentage of resources will finally end up in reserves for Bellevue! Don´t get me wrong - great project, great location, great cash position - but for a company with no pre-feasibility study done as yet, this is a rich valuation and I would at best rate BGL a hold at 1,40 A$.
Fortescue - hmm…I missed the company of my old mate Andrew Forrest for most of the last 15 years! But I am thinking of buying a few! Iron ore prices are still very strong at 122 US$/t, and discounts for lower% ore like Fortescue´s are falling,. indicating strong demand. Steel prices in China are strong…and I am sure, that at some stage, the US will get a very large stimulus program going…So it´s probably not crazy to expect iron ore prices to be largely unchanged - which is contrary to what just about every analyst says. But it´s also true, that these guys have never over the last 10 years had a view on the mineral, which proved right!!! I also like Fortescues proactive move into equal rights, and enviromental conciousness. Further, I think there is no company in Australia, which has closer ties to China - to consumers, as well as politicians.
For Andrew Forrest, the only way to get money out of the comnpany and to diversify his fantastic wealth, is via dividends. So I am expecting a continuation of a high pay-out ratio, which should give investors a yield above 10% this year and probably next as well. The company has a fantastic balance sheet - despite new mines being developed, it has never been any stronmger than today, and the company is undergeared, if anything. So overall, I have to say that FMG is tempting me!!!!
have a nice evening
WS
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