Good afternoon
oh I have been very lazy…and a bit demotivated! This bloody lockdown does not really increase my activity-level, I have to admit. And I am definitely missing a trip to Australia, for fresh ideas!! And this is despite a lot of interesting things happening!
Equity markets, which have raced from one high to the enxt, are becoming a little tired? At least today, tehy are. Base metals were incredible strong earlier on, but are now quietening down as well - just green now.
I think stronger then expected inflation is almost assured…corn/wheat/soybean/sugar/alu/copper/iron ore/steel/lumber/palladium making new highs nearly on a daily basis - and oil is not far behind, having risen very strongly until recently. So this will definitely filter through to manufacturers, industrial production, construction and the consumer. Everybody is expecting 2-3% inflation - what if this number suddenly rises to 5-or 6%? My gut feel is, that these sort of numbers are not impossible - despite the official CPI numbers being manipulated downwards by the way they are measured.
For us resources guys, that´s good news - at least so far.
It´s incredible, what a copper price of say 4$ does to forecasts vs a copper price of 3$ . Most producers have costs of above 2$ total costs - so even the low cost producers are seeing their margin doubling! And currently, we are trading at 4,50 US$/lb! New projects, which have been marginal at 3$ and impossible to attract financing, are suddenly getting fresh equity, and debt!
Hence we have had fantastic runs in the market - stocks like Foran Mining, Venturex, or Caravel Minerals have gone up by 10x and more from their lows just a year ago - and probably rightly so! Feeding say 4,50 US$/lb for copper, and an 8% interest rate, makes you suddenly arrive at valuations of 7-or 8$ for something like Foran MIning! The iron ore minres especially are killing it - at spot prices, Fortescue alone should make something like 18-19 bill A$ in EBITDA! So this is teh otehr side of the coin: I think the A$ will continue it´s upward bias, and will go higher - in turn putting some pressure on otherwise fantastic profit margins of Australian commodity producers.
Here a little bit of catch-up with my most important names:
Strike Energy - raised a tiday 75 mill A$ in an oversubscribed placement, followed by a 5-10 mill$ Share Purchase Paln, also at 30ct. The stock never looked back - trading as high as 36ct today, despite the ongoing SPP! Testing of West Erregulla 4 shoudl be completed within the next 3 weeks or so - and the company is very certain, that the results so far and what they have seen in geology & seismic, has increased the chances of South Erregulla ( which is 100% owned! ) to be gas bearing as well. The company is also attracting sustainability funds now, as tehy are planning their sensible Urea-project with nearby gas, and geothermal power - much improving the carbon print! Broker research is unisono positive - targets are generally above 40ct/share and more, without taking account of various upside scenarios. More fun to have had here!
Evolution - announced a pretty average Quarterly, for a change - but this was in line with companies expectations. The only unexpected were the well-telegraphed, heavy rains in Australia some weeks ago, which resulted in reduced production at the relatively small Mt.Rawdon. The company kept it´s production guidance roughly unchanged, but reduced it´s cost guidance by 60A$/oz or so. This, though, has been largely a result of the strong copper price ( copper is by-product at Ernest Henry ) . Nevertheless, very impressive at a time of general cost pressures in the industry!!! Red Lake , Cowal and Ernest Henry, the three most important assets, are contiunung to do well. The recent add-on aquisition in Canada comes with a mill, new reserves, ampel opportunity for processing from Red Lake, and 200 mill Can$ in tax losses!!!
Following some improvement of the price of gold lately, Australian gold producers generally have done very well - as have EVolution. So at current prices for gold, it´s hard to find strong value in the sector. The same applies probably to EVN. But outflows from gold ETF´s have come to a standstill now, and as we all know, there is plenty of reason why gold could/should go higher!
Chalice - continues to shoot out all lights! Exploration continues to deliver to highest expectations, and the strong palladium price also helps. Recent drilling confirmed mich upside, and this is all still without drilling in the forestry reserve, which could bring the size of the resource to a completely new level! And the resource is very palladium-rich, beside of nice grades of Pt, Ni,Co and gold…..I completely missed the last few $ in Chalice - but I am very grateful for the money I made in the stock! And certainly, I am very proud to have had Alex Dorsch and Tim Goyder at our last resources conference in Feb 2020 in Zurich, when the stock was trading at 20ct or so!!
Perseus - have also recently released an excellent Quarterly Report! They should have no problems to hit the upper end of their guidance this financial year. Yaoure, as their most important asset going forward, is ramping up very nicely, and exploration there is also delivering!! The company has no net-debt - only a few month after going into production at Yaoure! That´s an excellent outcome. The companies wording is strongly hinting at the first dividend payment very soon, probably for the current financial year ending 30th of June. Definitely a positive surprise. The company is very happy to look at aquisitions - but at a price. West African producers are still attracting discounts to first world producers - still, I think PRU is one of the very few cheap stocks around.
Have a nice evening
WS