Market Update

Waiting for Yellen - Crusader - Perseus - Kingsgate - Lucapa - Paringa

Good afternoon

waiting for Godot - well, at least waiting for Yellen! But similar to the book, we do not really know, what will happen, IF, nor, IF not...rising interest rates have been good for commodities historically , but we have never had a situation like the current one before. All I know is, that commodities so far this year have done relatievly well, and that China has been defying all gloomy predictions - even though with debt-driven measures. We will find out soon!

For now, gold is having a good day, trading about 10$ higher than in Australia early this morning...

The Phillippines will close anotehr 12 mines, mainly nickel ore mines, and also including some sizeable ones - but which ones exactly, and what they have to change to re-open, will only be announced on Monday. Base metals are very slightly lower today - nickel is up a fraction.

Equity markets so far at least are happy....let´s hope, that Yellen will keep printing....

Crusader - reported another fantastic hit with 1m at 1992 g gold from their Juruena deposit in Brazil, as well as 4.8 m with 11.9g and 4m with 27g. This is not the right sort of thing to get to a large resource - but the target is to have a resource of 300.000t of mineable material at say 10g, to enbale the go-ahead for a 10 mill$, 100-150.000t p.a. plant, which would cost them just 10 mill$, and would have cash costs below 600 US$/oz. At production of about 30.000oz p.a., that would generate enough cash flow to enable systematic exploration of their highly prospective ground position. The iron ore market in Brazil is also looking better for their Posse Mine - some smaller operations had to close down, as their tailings dam´s ran out of capacity, and new approvals are hard to come by in the aftermath of the Samarco-desaster. It would be a nice outcome, if they could sell Posse one day, to have enough equity for the gold plant. And last but not least, the approval process for a mining lease for Borborema is making good progress. A lot of unfinished work at Crusader, and given past experience, I am still a bit cautious - but there are strong signs of life here!

Perseus - a very impressive presentation at the Denver Gold Show! Very detailed numbers for many years ahead for their two mines in production, and under construction resp.. If tehy can get halfway, where they want to be, the stock is very cheap...

Kingsgate - the company, which has been suspended for a few month now because of the evry uncertain situation in Thailand, ahs received a takeover bid last week at a horrendous 4.2ct. Net debt of Kingsgate is about 40 mill A$ - but most of it is debt of their subsidiary Akara Mining. Not absolutely sure, that this is waterproven ringfenced....so let´s assume, that tehy actually have 40 mill in net debt, which is a worst case scenario. I think their Chilean silver asset is worth somewhere between 50-and 100 mill A$ ....even at the lowest end of this, the company would be worth 5ct...so I would not react to the bid. I think it´s very cheaky - the guy behind it is a former business partner of Kingsgate in Thailand. looks all very dedgy to me...and while I have not been a KCN fan for a long time, the company should be worth substantially more than the bid price.

Lucapa Diamonds - the Angolan , alluvial diamond producer has now ramped up mining to more than 20.000 bcm/month, as planned. July and August have been recoed month in terms of earth moving, treatment, and diamonds produced. Grades have been excellent as well, and while tehy reported the discovery of a 36ct fancy coloured stone, the company reported today the recovery of a 104 ct white diamond....This operation is going very well indeed, and the Quarterly should again verify my expectation of nice cash generation. The main target, though, is the discovery of the kimberlitic source op these diamonds. Given a lot of past ground work, they have strong indications for it, and exploration ahs started, while it should be bumped up following the renewal of a 3-year exploration license by the end of this month, hopefully. Lucapa remains a great story - not for the fainthearted, though! The only worry I have - and that is very subjective: For my gut feeling, more and more special stones are being recovered in Africa lately - I guess because of more sophisticated exploration- and production techniques. I wonder, whether there is enough , fugitive, chinese money around to buy all these beautiful things!

Paringa - natural gas prices in the States are going higher and have hit a 16-month high yesterday, making coal very competitive again. The share price of Alliance Resource Partners, which is doing very similar stuff to the mines planned by Paringa in Illinois, at very similar costs, has gone up by 100% since Feb to a respectable market cap of 1.6 bill$ again....Paringa is still languishing at 18ct, even though the company has never had stronger fundamentals than today. I think it´s very worthwhile to accumulate PNL....buy straw hats in winter!

have a nice evening

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General - Breaker - Evolution - Kentor - Venturex - Berkeley - Genex

Good afternoon

while the FOMC-Meeting is getting close, investors in the mining space are asking, what a interest rate hike would do for gold! That´s very understandable, as gold does not get you any interest, and generally, rising opportunity costs will make gold less attractive. I fear that´s true - for as long as interest rates are not going up because of inflationary expectations, which does not seem to be the case - at least not for now.

I believe, that interest rates will be going a little higher, as the effects of monetary policily lately have been very limited. Hence, Central Banks will try to slowly reduce the worst excesses of this stimulus. What is important, though, is, that I also believe, that the world economy would spiral down again, in case we would see significant rate rises around the world.

The question remains, whether and probably rather by how much, the gold price would be affected by a very gradual tightening of monetary policy. As the world is probably more f---ed up than ever, I think the downside in gold would be fairly limited - probably / hopefully confined to a 50$-drop or something like that. Given the vast improvement of mining companies on the cost side, I think further downside would not be greater than 10% or so in established gold miners.

Today we are seeing in the States, that the economy is not booming at all - Housing Starts as well as Building Permits have been disappointing.

Macquarie have come through with some major upgrades for coal and manganese today. While staying way below spot prices, which have rocketed recently, this has led to major profit upgrades for the large miners. Coal, iron ore and the share prices of respective producers have surprised EVERY single analyst this year and show you, that you have to be invested, BEFORE the action starts. ALTERNATIVELY, you can buy the small developers, which usually start to perform a bit later - in this case, companies like Prairie Mining and Paringa in coal. But other commodities will have their day in the sun - I am thinking of uranium ( Berkeley! ), or Rare Earth ( Peak Resources ). If you don´t buy these things, when nobody wants them, you will pay 20-30-40-50% more, once the action has started. In the meantime, you might have to wear some pain, though!!

The nickel price is gearing up for the outcome of the mining audit in the Phillippines, which should be announced later this week, probably on Thursday. I guess in the medium term, much will depend on the measures, which nickel ore producers have to take, to re-start production - and especially, by how much those measures would increase the cost base of these companies. Ultimately, and regardless of how many more mines will be closed, I think production costs in the Phillippnes will go up, taking the costs of nickel production in China higher as well. And for my favourite puppy, Panoramic, that could be major good news...IF the price of nickel should increase to 15-16.000A$/t = 12.000 US$, this stock would move like a rocket....

Breaker Resources - announced some more , very positive drilling results today. They are gradually closing the gap between their two, recent discoveries - if they can continue to do so, this could be a large gold resource! The stock moved again on large turnover of 3 Mill shares. At this stage, there is no limit to the resource...many reasons to believe, that this could be a new Gold Road ore something like it, with a market cap 10x larger thsn BRB....but as always, the prove is in the pudding! Much more money, drilling success, and even more luck are still needed!

Evolution - the capital raising has finally finished today with the placement of the 18 mill shares, which were not taken up as part of the retail tranche. It was completed at 2.35 A$. All technical hurdles are now behind the share price....the most importaant one, though, is still there: the godl price needs to hold here - if not, the 9 month up-trend would be broken. In that case, there would certainly be some downside risk for our gold producers. Van Eck have increased basically all the holdings of Australian producers within the GDXJ...unfortunately, EVN is now part of the large cap GDX, which has not been reweighted as yet.

Kentor - announced some very nice drilling results yesterday, as had been awaited for some time. 9.4m with 11.53% copper, 60g silver and 0.9g gold / 15m with 7,11% copper, 29g silver and 0.9% gold are certainly fantastic. The depth of approx 550m is not so good ( even though they have had success previously on the way down there ). At this stage, too hard for an outsider to quantify this - no idea about the possible t contained in this thing - and that could be the negative. I have used the recent strength to exit the stock....after what I believe have been more than 10 years as a shareholder, at varying weightings. A bit said, really - but at 44 mill$ and without an MD, perhaps fully valued!

Venturex Resources - Following the recent restructuring, and a discounted capital raising, they seem to find their feet again! They have started greenfield-esxploration again, with 4.5 mill$ cash in the bank and some initial success. Their total resource now stands at 900.000t of zinc, and 200.000t of copper, but over various orebodies some distance apart in Western Australia. So in my opinion, they will have to concentrate on finding just a little more at the right grade, to get the project over the line. This stock for example has it´s projects a little further advanced than Kentor, with a good chance to enter the development phase within the next 12 month - while the company is 10 mill$ cheaper and has enough cash for the next 12 month - contrary to Kentor, which will have to raise money this year ( about 1.3 Mill$ left at the end of this Quarter ).

Berkeley - announced the first sniff of an off-take agreement today - a European metal trader has signed a letter of intend to buy 200.000lb p.a. for the first 5 years at above 41 US$/lb uranium off them. That´s only a small quantity - about 5% of the first 5 years production - but more is to follow, and it helps setting a price, as well as it´s increasing confidence in the longterm contract market for uranium, which is only trading at 25 US$/lb spot. If the company can secure more size at that price, financing of the mine should not be such a hard task. Some North American brokers value Berkeley at around 2.30 A$ - I can see , why!

Genex Power - as expected, the Government granted 8.8 Mill$ to their solar project in Queensland. Even more important, the Queensland government is giving them a guarantee, to pay them the difference between electricity prices received and some publicly undisclosed value of between 80- and 90 A$ per Kwh ( which I believe will be close to 90$ ), payable at the end of each month. In other words, by the end of each month, and IF the price received has been lower than that price, the State of Queensland ( AA-rated ) will make up for the difference. That is a fantastic deal and in my opinion, should give the company the ability to get close to 90% debt funding at very low yield, as it´s operating profits are underwritten by a AA-rated body. I guess, that GNX will now need approx 10 mill$ in equity only, to finance this 50 MW solar power station! The stock has moved on a little from around 15ct to around 19ct - but at 33 Mill$, and hopefully 10-12 mill$ EBITDA p.a., I think the market cap is barely paying for Stage 1 of this solar project - not to talk about any valuation for the 250 MW hydro pump project to follow. feasibility study for the latter should be out by the end of this year. I have continued to build on my position in this stock - I think it´s very very cheap and in fact, risk vs return, has never been cheaper than today. I hope, that some analyst will put the effort in and publish some numbers soon!

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General - nickel - West African Resources - Breaker Resources

Good afternoon

Retail Sales in the States a little weaker than expected, while other numbers were meaningless and in line with estimates. European car sales, have been quite strong last month, as they have been in China. The last US-numbers today have been weaker. Perhaps the forthcoming election is having some impact on the consumer? Trump is very close to Clinton in the polls...just 3-4% between those two...Beware of the day!

Following a very strong day yesterday, metals are a little weaker today...as are bonds. Gold under some pressure by early afternoon, and could break some chart points today. The oil price is recovering by a small amount - I still believe, that we will see oil prices between 40-and 50 US$ for quite some time to come. Good for the miners, but not very promising for debt-loaden energy companies in the States!

A gold mine owned by Barrick in Argentina has a very limited cyanide spill...the mine had some issues before, and is currently suspended. It produces 600.000oz of gold at about 900 US$ AISC, at an elavation of 4500m.

The UK government approves the 24 bill US$ Hinkley nuclear power station.

The A$ looks on the charts as if it has had seen the top....could spend the next while between 72- and 75ct, in my opinion.

Goldman´s are bullish on my favourite subject, nickel! Their base case is, that additional 15% of Phillippino nickel ore production will be suspended - possibly more. It then raises the question, how much of this production will come back longer term, based on improvements of enviromental standards of those mines. Goldman´s forecast for the nickel price is 12.000US$/t in 6 month time - but they see downside after that, once and if production will come back. I am wondering, by how much improved enviromental standards will increase Phillippino costs, and hence, costs of Chinese NPI-producers? Goldman´s can see much higher nickel prices, if substantially more than another 15% of nickel ore production would be shut by the government. We should find out by next week! In any case, I am still holding my large position in my old favourite, Panoramic....

West African Resources - under some pressure since yesterday, under quite heavy turnover, despite announcing another set of good drilling. The wet season is over, and two drill rigs are working continously, which should see some more good news for the stock like yesterday´s 11m with 18g ( outside of the current resource )over the next month or two, before the new resource estimate as well as feasibility study will be announced closer to year end. The orebody is not as compact as the first one, and will have a much higher stripping ratio - but also much higher grades. I bought a few more today, as the stock should be in value territory again ( it´s trading under the last, heavily oversubscribed placement at 30ct today ). WAF have about 20 mill$ cash in the bank - only 2-3 mill$ needed to finish the feasibility study and hence, much room for further exploration.

Breaker Resources - spoke to the MD Tom Sanders today, whom most of you have met in Zurich. As Indicated before, tehy might well be on the something very sizeable....The company has now established mineralisation with some good grades over 600m of strike length, and has had some good intersections previously from an area, which is 1.6 km to the North, having very similar characteristics. They are drilling in between currently, and will drill further North as well. They are also excited by the presence of sulphide lodes, which in many mines in W.A. are responsible for underground mines, going pretty deep usually. If the company can indeed prove sontinuity, the sky is the limit for this one. Tom has run this company extremely frugally, and has been living from hand in mouth for the most part of it´s 4-years existence. Tom has paid himself a very low salary, and alwways only raised enough money for the next drilling program. The small cash position makes it mandatory to have another placement soon - this time, I believe he might be raising 5 mill$ or so, giving him enough cash for the next 12 month. The way this stock goes in the moment, he should have no problem in doing so, and for risk-investors, it might provide a good opportunity with very substantial upside. I am pretty excited, I have to admit, and am not selling any!

Have a nive evening and enjoy the weather! Very said - this might be the last day of summer!

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General - Finders - Beadell - Newcrest

Good afternoon

the Bayer takeover of Monsanto shows us, just how crazy this world hast gotten, thank´s to zero-interest rate policy:

Bayer is paying 66 Bill US$ in cash for Monsanto, equal to 15x EV/EBITDA....they will pay Monsanto a 2 bill US$ break fee, if antitrust bodies kill the deal ( well, the market is saying: it will be killed! ). Bayer claim, that the transaction will be EPS-positive! Yes it might well be - but only because of extraordinary low interest rates! Monsanto generates about 1,5 bill $ in gross profits from Roundup....One thing is for sure: This will be a very profitable transaction for investment bankers and lawyers - perhaps even for shareholders, but I doubt that! You and I will pay for any potential failure, as the EZB will probably gobble up a large chunk of the bonds to be issued....

Markets are getting very wobbly again in the moment - I think Mr.Trump gaining in the polls is not helping here. At the very least, his election would drive uncertainty big time - and hence, risk-off seems to be the story for now...

That does not help gold, though - but it puts some pressure on the A$. Hence, the A$ gold price is edging higher, trading at a healthy 1770 A$/oz in this moment.

Some very strong credit numbers from China, and strong Industrial Production yesterday, are probably helping base metal prices today - copper is up by 2% in the moment.

Beadell - positive announcement today, that they will change to power from the Brazilian grid. Currently, the company is getting 1 MW from the grid only - by year end, they will get 5 MW, and longer term, 12 MW. I have no hard facts - but experience tells me, that this will half power costs over time - potentially more. I guess that total power use of BDR would be something like 8-10 MW. As I said yesterday - stock is worth accumulating under 40ct, even though I do not subscribe to some ultra-bullish valuations of up to 80ct/share I have seen.

Finders - published a new presentation today, which is giving detailed numbers for the ramp-up of the recently commissioned copper mine in Indonesia. I started to become a little worried about progress , but things seem to be going in line with expectations: Monthly production has grown from 600t in June, to 1100t in July, 1350t in August, an expected 1750t in September, and should reach full capacity of about 2.350t/month in October. Obviously, Sept is half finished - so they must be very confident of these numbers.

Based on the current copper price, and the current 7-year mine life, the stock is halfway fairly priced - say 25-30% upside. But if you assume, that the copper price will be going back to say 3$ over the next 2-3 years, the NPV10 of Finders should be close to 140% higher than today´s share price. At 250 US$/lb, the NPV10 would be just about 80% higher than today´s market cap of 114 mill A$. One could certainly argue, that a 10% discount rate is overly conservative, and it might well be....In any case, Finders are a pretty sound story and offer good leverage to copper, and exploration success!

Newcrest - took a placement in SolGold, which is developing a copper-gold resource in Ecuador. I think this is the first investment for Newcrest in South America, and further indicates, that the enviroment in Ecuador is improving big time. Ross Beaty has become very active there - Odin Mining recently has bid for Ecuador Gold and Copper - and Lundin Mining is developing a large project in the country.

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General - Strike - Evolution - Beadell - Breaker

Good afternoon

The mood has changed with regards to monetary policy! Mopre and more commentators are questioning the effects of further easing, and headlines about the negative effects of ultra-loose monetary policy are becoming more pronounced, and tend to get more air space. The only question , in my very personal opinion, is just how far this process will bring us back into positive short term interest rates, and by how much this will affect longer dated bonds. I just cannot see the enviroment getting positive enough for economies to be able to handle strongly rising rates...the world is still extremely vulnerable ( and in fact, has probably become more so over the last year or two! ), and will not be able to sustaing a positive growth path, if central banks around the world get back to normal any time soon - and probably, never!

Mrs.Clinton is "feeling incredibly well" while having pneumonia....that tells you something about the treatment of the truth in American politics...anyway, as crazy as this sounds - but it has certainly increased the chances of this man called Trump. If youi believe, that the market is always right, Trump will make it anyway....saw a little piece yesterday, which was charting the amazing performance this year of US-coal stocks, which went absolutely through the roof. Clinton is very much anti-coal mining, while Trump is very much pro....

The A$ gold price is still extremely healthy at around 1765 A$/oz - that´s exactly in line with the average for this Quarter so far, and more than 100$ above the first half average! We should see some very nice cash generation from Aussie producers, once Quarterlies will be announced next month! But the massive re-weighting of Australian institutions into gold stocks is definitely over for now, and hence, stocks are consolidating.

Strike - the MD got the sack on Friday! I very much liked David Wrench, and his sorrow and cautious approach to developing the companies huge gas resource. But it looks like not everybody agreed, especially not the chairman! I understand from talking to several people close to the company, as well as major shareholders, as to management, that Mr.Carnegie has not been happy with the slow progress. also, there might be different opinions as to possible JV´s on STX´s vast acreage. I understand, that David wanted to go it alone.

The criticism is probably not totally unfounded, even though I very much regret David´s dismissal from a personal standpoint. It has taken much longer than anticipated to prove commerciality of the project - even though I understand, that it takes time to understand specific characteristics of a specific resource, and the best ways to make them flow in an efficient and save manner. One thing is definite: the new management will try to push things very hard, and will probably reap the rewards from David´s work. In terms of making money in the short term, the move will probably turn out to be positive - especially, if the company can do a meaningful JV with a larger company. In the long term, that would probably flatten the potential upside - but that´s something I could live with, if the process speeds up development. I will continue to monitor the situation very closely, given my large shareholding in STX, and will be in contact with the new MD later this week - he just arrived in London today.

Just one thing is really important for now: David reiterated to me, that he believes to have developed the project to a stage, where it´s " at the cusp of commerciality" - so even as he got the sack, he is still very much convinced of the asset and it´s quality!

Evolution - announced some excellent and important drilling results from it´s major project, Cowal yesterday. The results point to an increasing part of the rfesource being within the new pit shell, following the large cut-back, which is most probably goinmg ahead from enxt year now. Given the quality of the drilling, the reserve grade of Cowal looks to be improved as well, making this operation an even better asset for the next 15 years or so.

Today, EVN released a new presentation for the upcoming, major gold conferences in North America from this week, and updated guidance following the sale of Pajingo, and the purchase of Ernest Henry:

Production AISC

2015/16 803.000 oz 1014 A$/oz

2016/17 800-860.000 900-960 A$/oz

2017/18 820-880.000 840-900 A$/oz

2018/19 830-890.00 830-900 A$/oz

The gradual improvement of the asset quality can be seen - small increases of production, while lowering costs even further to within the best 25% of world production. I would be surprised, if the Americans don´t like this!

Beadell - also with a new presentation, for the same reasons. The company is still very confident of having a great half year - following 56.000oz in the last half year ( they have Dec-year end, contrary to most Australian companies ) , BDR is guiding for 145.-160.000 oz for the full year - and we already have mid-September, so they must see a strong improvement already. Mining rates have substantially improved last Quarter, while the wet season was still on. I would expect further improvement this Quarter, enabling them to increase the portion of mined ore being treated ( vs the amount of low-grade stock pile used ) , which in turn should lead to overall grade improvement. If they achieve production somewhere in the middle of their guidance, grades ex Duckhead will have to rise to about 1.27g/t or 20% higher than last Quarter. I think that should be possible - for as long as they have done the grade drilling properly, as they approach better grades in AB1 and AB2 lodes.

Unfortunately, the companies hasty placement at 19ct soon after the new management took control has been very dilutive, limiting the upside. Still, I think below 40ct and at current gold prices, the stock is worth accumulating again.

Breaker - I am very relieved and happy for Tom Sanders, finally to have some luck! His hard work seems to pay off! He is not there yet - but recently his progress to delineate what could be a very sizeable resource has been very good. Today´s drilling results give me confidence for the first time, that BRB are not only sitting on a viable resource within it´s large land holding, but that they are finding and defining it! The only problem, as usual: Tom has got no money! The company will have to come to the market again quite soon. Anybody, though, who continued to support his vision in the last 3 raisings ( which were all very small! ), have been massively rewarded, and he should not have a big problem to find a few million $ from his shareholders! Still very speculative - but Breaker is looking closer to success than ever!

Fortescue - it starts to get boring: They are paying back another 700 Mill$ of debt! The cash generation of the business is phenomenal at current prices for iron ore, or even lower....Macquarie believes, that FMG will get an investment grade rating from the agencies within 6 month! Fantastic achievement, fantastic management, and making RIO and BHP looking pale in the face!

Have a nice evening for now!

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