Market Update

Perseus - Beadell - Lucapa - Paringa - Breaker

Good afternoon last week´s exceptional volatility has shown us, that the financial system is still vulnerable....Concerns about banks worldwide, based on negative expectations for write-downs of energy exposure, emerging market exposure, ongoing litigation, have been one issue - but concerns about the world economy have also played a major role. The risk for recession in the States have increased, while Japan, Europe and especially China are still vulnerable.

When once proud and arrogant Deutsche Bank needs to issue statements, that all is fine and debt can be paid back, you just know, that this is not just a little seismic event, but potentially, a real tremor! Deutsche Bank´s subordinated bonds, which can convert to equity under certain circumstances, fell by up to 20%.....highly unusual stuff...

The good news of the week has been, that gold still reacts to crisis! Strong inflow into ETF´s has driven gold holdings higher, and speculative interest ( and that´s the best news ) has also increased again. So obviously, gold is not dead!! In A$-terms, it rocketed from 1600 A$/oz on the 4th of Feb, to a high of 1775 A$ one week later! As you would imagine, this move raised major interest in our gold stocks. Especially today, and driven by strong equity markets, gold has corrected down to just under 1700 A$ - but it´s alive again, and a price like this could trigger fresh development activity, and M& A

Perseus - remains the most sensitive stock in my universe to changes in the US$ gold price - not surprising, as their total-on-site costs are just around the current gold price. 28% of production until Sept 2017 are hedged at 1275 US$ gold price - a nice buffer at a time, when the company is spending big on cutbacks, and the relocation of a village ( just over 20 mill US$ ). Even though PRU are sitting on about 95 mill A$ or half the market cap in cash, the market cap per ounce of production is a very low 850 A$/ounce. Management ha shown over the last 2 years,, that they are capable of managing this asset well, and costs have been pushed down everywhere. The only concern remains grade - and I admit, that this is a very important concern. The low grades of last Quarter seemingly have not only been a "planned" thing due to the mine plan, but also some grade control issues have been apparent, as the company has required the contractor to use additional rigs for grade control drilling. PRU have commented, that over the next few Quarters, grades will come back to reserve grade - which is almost double last Quarter´s grade. In so far, I am not expecting PRU to hit full production again this Quarter, but next. This will not prevent them to burn some cash, most probably, until their major capex program is finished, and at 1200 US$/oz for gold. So PRU are not for widows, but a well managed speculation on the gold price with good leverage to price + operations.

Beadell - the same can be said about them. Contrary to PRU, they do have debt - about 60 Mill A$ in net debt as at 31.12.2015 - which gives them almost as strong leverage as PRU, even though they produce about 25-to 30% less gold for a market cap of 147 Mill A$ and EV of about 210 mill A$. The new management issued guidance today: 145-160.000 oz at AISC of between 715- and 815 US$/oz, helped by the weak Brazilian Real. This is about 10% lower than old management´s indication, but costs are 50-100 US$ below most analyst`s expectations. Still, the current year does include production from Duckhead, and in so far, is a little disappointing. It will be some time, before the company will issue guidance for 2017, which will see production with the high-grade Duckhead. In my opinion, this years guidance is very conservative - typical for new management, which wants to surprise on the upside, and wants to look good, going forward. BDR should be able to produce around 150.000 oz inm a normal year, at say 900 US$ AISC - still pretty good for such a low market cap. And by the end of this year, and at the current gold price going forward, the company should be largely debt-free. BDR remain a great turnaround speculation for me!

Breaker Resources - as you might remember, this has been a huge disappointment to us in the past. But against many explorers, and largely unnoticed, the stock has put on 400% in the last 6 month or so - on low turnover. Breaker are still exploring for a big deposit in the under-explored Yamarna Belt, east of Kalgoorlie. The company believes to be on the verge of a major find, and has delineated a large anomaly, and has also delivered some promising drilling results. But in my opinion, the big breakthrough has not been achieved as yet. Let´s hold our breath for the very honest and straight Tom Sanders, who has been one of the few managers of similar companies, working for very little to prove his idea! They have started an exciting drilling program today, which, if succesfull, should see the company raise some cash.

Paringa - announced very positive scoping results for their second coal mine in the Illinois Basin in the States. Opex will be slightly higher than at their first, planned mine - but capex at 44 mill US$ is only small, as the shallow deposit could be developed by a simple box-cut. This is also the reason for a relatively short development time, and the company believes, that production should be achievable in md-2018 ( so let´s call it end 2018, then ! ). Obviously, such a small cap-ex mine for 1.8 millt of coal p.a., delivering 33 mill US$ in EBITDA p.a., is much easier financed than the previously planned, No.1 mine. The company has therefore changed the agenda, and will the No.2 mine bring into production first. A sensible move - still, earlier indications had been, that the No.1 mine could be financed, even in the current environment - and that does not seem to be the case anymore.

Lucapa Diamonds - this is an interesting one. Chaired by Miles Kennedy, who was Ex-Chairman of Kimberley Diamonds, and Chairman of Sandfire more recently, they are producing alluvial diamonds in Angola. They have discovered the largest ever diamond in Angola ( which is a large producer of diamonds ) today, a 404 carat stone my wife would be very happy with, and the largest ever found by an Australian company! The current quarter should be a good one, as some other, nice stones had been reported a few weeks ago - which is very much needed, as the company is running on low cash, and most probably, is required to raise some cash at some stage. As always with diamonds, it´s nice to produce from alluvials - but the real price is to find the pipe, where the diamonds have been sourced by ancient rivers. Lucapa believe, that they are very close - and they are trying to prove that with large diameter drilling, starting in February. Without having spoken to them, I would not be surprised to see a capital raising soon - could be a good opportunity for daring investors!

Have a good evening and a nice week, WS

Wilhelm Schröder

Schröder Equities GmbH Seitzstr.7a 80538 München

Tel. +49-89-4613440-0 Fax +49-89-4613440-10 email: website: www.schroeder-equities.com

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