Good afternoon
a strong US$ could not put an end to the rally of gold-and base metals today...nickel trading above 9.000$ again....perhaps the market remembers, that lithium-ion batteries also need nickel and cobalt? Not sure - I fear more important is, that commodity related funds are seeing inflow again. But this comment is already history, as I am finishing this letter - the US-market has turned base metals in the red again! Jobless claims fell unexpectedly, and the US$ is gaining further strength this afternoon.
Australian gold stocks are still very strong indeed - notwithstanding the fact, that the A$ gold price is not moving, due to the strong A$. I think most of our strength in the larger names is due to the North American ETF´s having to buy to accomodate their inflows. Fundamentally, I hate to admit, our large producers are all fully valued at the current gold price.
This might be the reason, that even institutional investors are chasing second liners.
Lithium- and graphite stocks are still moving like hell...some of these things are now trading at large market caps of up to 1.3 bill$ - so the next thing for them will be index inclusion. There has already been considerable interest from insto´s in tehse things, and large brokers like Deutsche Bank and Macquarie Bank have published extensive research papers - but index inclusion will drive the rest into these stocks as well.
I have recently taken a small position in a company, which is going to float next Tuesday, called Graphex. I have to admit, that I totally negelcted this part of the market until recently - and I believe, that Graphex is a very lucky situation for late-comers. More further below....
The other story, which late-comers should be playing in my opinion, is the Rare Earth story. Tesla´s cars are using induction engines - they do not need any Rare Earth. But just about any other electrical car manufacturer does need them, as well as wind energy....Chinese exports have risen very strongly this year, and from what I have heard is, that there have been quite reasonable stockpiles of Rare Earth within China. But these are going to vanish soon, and in the not too distant future, Rare Earth prices will move. Any improvement will meet a very small number of stocks, as China is still producing 90% of the world´s material. The prime canadidate to buy is certainly Lynas, which seems to have turned the corner operationally - but they still have net debt of more than 500 Mill A$, and are at the mercy of their ( very friendly ) lenders.
But I have recently spoken quite a bit about Peak Resources, which also presented at our conference in Zurich a few month ago. PEK are in the last days of their small capital raising, which will enable them to finish the bankable feasibility study for their first-class project in Tanzania. As you know, PEK are financed by a large PE-fund, and the World Bank - both will be very valuable, once it comes to projct financing next year - probably some 125 mill US$. I have high regards for the management of PEK, and there is very little doubt as to their project quality - both should reduce execution risk. Go to their webpage www.peakresources.com.au and have a look at their last presentation - in my opinion, very worthwhile. I declare my interest - I took some stock in the recent placement, and bought some more in the market as well at current prices. In my opinion, it will be a question of time, when investors will channel some of their profits in the other new generation minerals/metals stocks a small part of their profits into the sector.
Graphex Mining Ltd - going to list on the 14th of June. I would be surprised, if they trade at 40ct ( which would give them an EV 22 Mill A$ fully diluted ) - against an IPO of 20ct - and I got a small allocation in the stock for my fund. But this IPO was priced in late February, and was cheap then. In the meantime, stocks like Kibaran ( which I quite like as well, but costs are perhaps a bit high ? ), Syrah and Magnis have doubled and trippled since then. All of these companies have their assets close to Graphex - in Southern Tansania, or Northern Mozambique. If you have not invested in this space for far ( as myself! ), I think GPX is a great opportunity. The market cap at the IPO prices is only 11.5 mill$,. of which just under half is cash. Kibaran does have an EV about 53 Mill A$ as at today. The company is probably 9-12 month ahead of Graphex in it´s development - but Graphex also has a pre-feasibility study already completed, for a very similar NPV, mining approval expected this month or next, and enough cash to finish the bankable feasibility study. Also, to me it looks to be the slightly better project overall. The company has also signed a MOU with respected Chinese company, China National Building Material Group, and is in talks with them for off-take and financing. Construction start is expected in 2017. In my opinion, the company should have a similar market cap to Kibaran ( which I also quite like ), which would still leave them at only 20% of the expected NPV of 200 Mill US$ for the project.
Have a nice evening,
WS
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