Good afternoon
well that was great timing - we held our yearly Australian Resources Conference in Zurich - I think it was the 15th conference - on the day, when gold formally entered into a bull market - that is up 20% from the low!!
We had the usual attendance of about 55 investors - and without praising ourselves, I thinkw e have had an excellent group of high quality companies, repersentative of the sector - from base metals to gold to energy and fertilizers.
Thank´s to all presenters, who have put in a huge effort to come to Zurich!
In the following, a very quick run-down on the presentations:
Perseus Mining - a very confident presentation from Jeff Quartermain, who has managed to put the Edikan operation in Ghana on a sound footing, on the way gettingh his balance sheet in order with a substantial cash balance. His presentationnaturally centered on the newly announced takeover of Amara, which is very complementary in terms of risk, timing and location to the existing operation. In my opinion, it remains to be seen, whether PRU will actually get it...there are some other names active in West Africa, who are probably having a good look!! The stock is currently under a bit of pressure from arbitrage - but in the medium term, this is a good deal. Nevertheless - the stock would probably rbaound in the short term, without this bid!
Evolution - as ususal, Jake Klein has been putting in a great presentation, not making a secret of the fact, that the company is willing to expand further by aquisition - but also pointing to some very good progress on exploration. The company is spending 25 Mill A$ this year to expand reserves - I think we will see much success from Edna May underground, Carlton, Cowal and the newly aquired ground from Phoenix Gold. The stock continues to be a MUST for gold investors in Australia. In the very short term, and pending further news, the stock is probably worth 1.80-2.00 A$, which is around current levels. But the management team has shown the ability to add a lot of value, outperforming majors by a massive margin. I think there is a very good chance for this to continue - and I continue to support excellence in management!
West African Resources - Richard Hyde is perhaps not the best of all presenters, but his story is a very good one - obviously very different to the likes of established companies like Evolution. Diffficult for him to present, as the "official" case is still to go into production via a very profitable, and low-capex heap leach mine. More recently, though, the story has started to change because of significant exploration success: Resources,without doubt, will have grown substantially, opening the path to a more expensive, but better quality and better-recovery CIL-Operation, which would recover a lot more gold,a nd would be able to treat more of the ore. This is a story to watch - from a smallish operation, producing something like 450.000oz ov the mine life, this could easily transform into a 1 mill oz story. The market cap is not showing the upside as yet - one for investors, who like the upside from exploration!
Finders Resources - I like Barry Cahill´s hands-on style! you get what you see! The stock has not done anything recently, but this could be about to change: Their mine in Indonesia will be in comissioning very shortly - I guess this month. This might be 3 month late - but more importantly, it will be delivered under budget. Logistics on a small island in Indo have been far from easy - but now it´s done, and the stock should produce 28.000t of LME-copper at sub 1 US$/lb - you can do the numbers yourself: That´s nearly 62 Mill lbs at 1$, and they are currently receiving 2.26 US$ for it. The cash flow should be something like 77 Mill US$ or more than 100 Mill AS$ p.a.! And this is not acounting for their very positive forward sales! The enterprise value of FND, once in full production , should be in the order of 235 Mill A$ - that leaves a lot of upside! FND are the cheapest, new copper mine I am following....It has been coming for a long time - finally we are THERE!
Berkeley Energia - this is an outstanding story! The planned mine in Spain will be an extremely strong project, even based on today´s uranium prices of around 35 US$ - targeting cash costs of around 15 US$/lb. While China´s demand for uranium should double over the next 10 years, replacing a lot of coal, we should have fun here! The only caveat is permitting: the first stage of BKY´s project is fully permitted, but the real cream is in the Zona 7 deposit, which was only discovered in the middle of last year. Being much higher grade, it can transform this project - and recently announced exploration results are indicating substantially more ore, at world-class grades! The approval for this very important asset should not be so difficult, as the company and all authorities have just gone through the first approval for stage 1 - but nevertheless, is expected to take 18 month. The stock will be worth a lot more - perhaps we need some patience, unless some big private equity player comes along!
Strike Energy - Gas in Australia´s East Coast market - that is a very different thing to anywhere else, thank´s to the huge demand from the 45 Bill US$ development of 3 LNG plants, it´s in short supply - and prices have recently gone to 7 A$! STX have sufficient resources to supply 6 TCF of gas over the next 20-30 years, equal to 25-30 bill A$ in revenue! Infrastructure is establised , and the cost of STX´s gas could be around 4A$(GJ, which should be in the lower 50% of producers.But as usual with this type of gas project, the pathway to commerciality is not that easy, and needs some testing and trying! STX have gone a very long way - and it took some time! - but the most important step: to prove commerciality - is very close. We might need some more patience - but this is a very large opportunity, carefully managed by David Wrench, and one which will make us heaps!
Genex Power - personally for me, it was very satisfying, that this story found a lot of interest! The Australian market just does not understand renewable energy...In my opinion, a great opportunity for European investors. To develope a solar plant,. under great Australian sunshine on a flat tailings dam, and follow it up by a hydro-pump project ( pumping water between two very large, historic pits full of it to arbitrage vastly different electricity prices at different times of the day, is a fantastic and easy idea! Again, it might need some patience - but Australia is finally supporting these projects, and over time, we wills ee a substantial re-rating of this company.
Highfield Resources - continues to good to be true - but the share price tells you, that it actually might well be that good! The company will produce potash at costs at the door of the customer much cheaper than the majors, and they have potential over time to produce 2-3 millt of it p.a.. The starter project is nearly financed - but the final approval is outstanding. The company stated at the conference, that it should be forthcoming before the end of June - not sure, whether they are just conservative, or whether it indicates some slippage from the previous target, being the end of March. The presentation stressed the highly strategic nature of this asset - and I could not agree more! I would be really surprised, if Highfield would not end up in the hands of some large producer.....
Panoramic Resources - what a sad presentation, in a way! Peter Harold has done a great job to run this company, and to cut costs over the last 2-3 years against an ever falling nickel price. But finally, and to protect the asset, he had top give in: One mine is already closed, and the other one is in closing-down mode - unless we see a substantial improvement of nickel prices in the next 2 month! Especially Savannah is an excellent asset, and a great option on the nickel price. Good for Peter, that he still has the Gidgee Gold Project, which will keep him busy in the meantime: With gold at 1700 A$/oz, I think the updated scoping study, due over the next 4 weeks or so, will show this asset to have an NPV pf close to 180 Mill A$ - vs a market cap of 50 Mill A$ as at today! I have no doubt, that we will see Peter Harold to continue as the MD: This company is his baby, and the people are his family - that became very clear and is great news! One, day, PAN will hit 1 $ again!
Peak Resources - this little company is probably holding the best, undeveloped Rare Earth project in the Western World! I have no doubt, that wind energy and electrical cars will grow very substantially over the next 10 years, vastly increasing the use of Neodynium and praesodynium - and that´s what they will produce, with very little radiation in the deposit! The MD Darren Townsend presented very well, what is very important: The large progress they have made, especially on the mineralogy of the project. 2016 will be a very important year for them, and should create a lot of market interest. So far, they have languished - but Peter Harold as the new chairman has raised attention for the stock. They should be fully financed to completion of the BFS by a large private equity investor - but I guess a little bit more independence would help the stock!
Gascoyne Resources - this one could well be a new, reasonable sizeable, Australian gold producer. Obviously been helped by a better A$ gold price, their first project, Dalgaranga, could produce 100.000 oz p.a. over 6 years - similar size to Gidgee from Panoramic, but slightly more advanced. The project is fully permitted.The second project needs more work to be done - but looks a very fair chance as well. The market would love to back this one, as it´s run by a succesfull development team. Certainly one to watch - for now, exploration success as part of the bankable feasibility study will be the biggest share price mover. Watch this space - this could be a nice one!
beside of the conference, a few things have happened:
Resources stocks have just put in an absolutely amazing performance! Driven by a strong gold market, and fundamentally more important, a very strong iron ore price of 55 US$/t, the majors have recovered big time - and I think the shortsb have become very anxious! Otherwise you cannot explain moves like Fortescue, which ahs put on more than 50% in a week!
There is a lot of talk around about the potentially very damaging effect of negative interest rates, driving gold ever higher. But in the short term, I am becoming a little cautious on our sector. The world is NOT doing well, and resources need to consolidtae - the only exception might well be gold - nobody has got any, and the pot of available money flushing around has probably doubled since the financial crisis hit 8-9 years ago!
German Factory Orders are down second time in a row...and politically, Eurozone is not far away from bancruptcy....
Crusader - landed a great marketing coupe: Jim Rogers has become a director of the company! Not everybody likes him - but this guy is still a legendary commodity investor, and him accepting this roll, will create a lot of attention for a stock, which is a great call on the gold price!