Market Update

General - Lucapa

Good afternoon and a Happy New Year to everyone!

I am sure it will be as exciting as the last few...and I sincerely hope, that we will see the positive side of Trump - otherwise it could well be an ugly year!

It´s certainly interesting to see, how the president, who got voted in by the voter without a voice, will satisfy them with a cabinet of billionaers and more or less questionable Wall Street figures! I am pretty sure, that he will be good for business, bad for the enviroment, and dangerous for a safe world....so we might as well try to make most of it, anyway.....

Consumer Confidence is very strong, manfacturing around the world is doing well, car sales looking good, China continous to kick along, and inflation numbers are rising - this should be a good year for commodities. And Yellen continous to find excuses for not increasing interest rates...Gold might be in for a pleasant surprise, as physical demand is recovering, and financial investors have already sold!

Australia is still in heavy holiday-mode - not much is happening in terms of news....but the year has started with cautious optimism for equities - like everywhere else!

Lucapa Diamonds - updated on the Dec-Quarter production of their Diamond mine in Angola. Lulo produced a record amount of diamonds for the wet season, which starts in Nov and finishes in March. 5.313 ct of were produced, two parcels of diamonds were sold for 14.6 mill US$, an exceptional 3.111 US$/ct. The averagee size was 1.9ct, and the average grade per 100 cubic meteres was 10.6ct. The company finished the year with a large inventory of about 3000 ct, to be sold at the next sight this month. All excellent figures - the problem remains, that alluvial production is ( correctly ) not really priced by the market. While LOM have shown good consinstency in their production, the forecasts for alluvial production will always be pretty tentative. The main game in town is to find the source of these alluvials, and LOM continue to work on this. They have stated, that they will update on exploration before the Quarterly Report, indicating to me, that they might have something positive to say. Success here would open up very substantial upside to the stock, and probably, would result in corporate action....

have a nice evening and enjoy the the rising gold price!

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Happy Christmas!

Good afternoon

this morning, I went to the local Degussa-outlet to buy a piece of gold as a Christmas present for somebody. I had to kew for it, and the shop was extremely busy. According to the employees, this has been the case for the last few weeks. Indian imports last month have also been surprisingly strong, reversing the recent trend of weak imports. This gives me further confidence to see some light at the end of tunnel for the gold price, which has been hammered by relentless selling of physical gold via the ETF and by financial players.

Other metal markets are also very steady today, as are currencies...it almost feels like most investors have done for this year, what they needed to do. Now for the window dressing during the last few days of the year!

I have really not much to say these days...markets have become pretty quiet, resources investors are frustrated with regards to gold, and with regards to other metals/minerals, markets are in consolidation-mode, following the strong run this year.

Unless something exciting happens tomorrow, I might finish writing until early in the new year!

I wish you all happy Christmas, a great start to a hopefully exciting year 2017, and health & happyness!

General - Marindi - Berkeley

Good afternoon

the US$ is making new highs, and the gold price does not like it! Metals are holding today, following a few, very weak days. I believe and hope, that this has been the reaction we needed to have....in my opinion, one can look at buying again...and for gold, we are getting close as well. Holdings of the ETF are still falling - US-investors obviously still selling...and as one should never underestimate the nationalism of US-investors, this could go on for just a little further. In the space of just 4 trading days, the GDXJ has fallen by 20%, mirrowing the outflow in the physical.

Some of the few stocks holding well are both based in Ecuador - Solgold as well as Ross Beaty´s vehicle Lumina Gold both are hardly down. But I guess they have also been helped by having gold/copper exposure, not just gold.

The German PPI rose by a tiny 0,1% - but it did so for the first time in 3 years!

Marindi - I briefly touched on them before. Interesting, very small company, run by Joe Treacy, who is a very nice, straight and experienced operator. Some might remember him from years ago, when he was one of the 2 guys running Kagara Zinc, before they went under with zinc trading at less than half of todays A$-price. Marindi is having a large ground position just next top Kidman Resources, who have found what some analysts regard as the best, Australian hard rock resource of Lithium. MZN are just next door - 1500m or so away, and have today reported their first drill hole, which hit 34 m with 3.1% lithium, which is a very exciting intersection. Furthermore, there is some litigation going on in the moment. MZN are of the opinion, that Kidman JV´d their ground ( before they actually knew about the lithium ) with Marindi ( Marindi is capped at 22 Mill A$ today, KDR at 190 Mill A$!! ). Whatever the outcome will be ( I assume some kind of JV as an out-of-court settlement ), I think MZN are a good punt without the court case even. One more interesting aspect is, that 236 mill MZN options are expiring at the end of this month, at 2ct - Marindi closed at 1.9ct today, and traded as high as 2.5ct, with 71 mill shares traded! The option excercise will continue to put pressure on the share price for the next 2-3 weeks, presenting new investors with a good buying opportunity. My fund is a small shareholder, and I admit, that I orginally did not buy them for the lithium, but for their zinc/copper exploration!

Berkeley - have ordered the first long lead-time equipment for their uranium mine in Spain. The prices are 20% under what BKY had budgeted in the bankable feasibility study, and the early order will bring forward production by a few month. This certainly assumes, that they will be able to fix the financing. The fact, that tehy have ordered these big-ticket items early, shows, how confident BKY are to get it done one way or the other ( that is: either more equity / bank finance / offtake or a mixture of it ). One thing is for sure : This will be an extraordinary low cost uranium producer, and the sahres can go quite a bit higher over the next 1-2 years. I am selling a few on the way up here and there - but only for riskmanagement reasons, as I have a relative large position in the stock.

Have a nice evening!

General - Highfield - Breaker - Kasbah

Good afternoon

Finally, the A$ is succumbing to a strong US$....it´s currently trading at 0.725, and looks like it might test 0,7150 A$/US$ - that is the recent low. The weakness has been triggered by the announcement of the interim budget for Australia last night, which is forecasting a slight improvement of this years budget to the 30th of June, but a 11 bill$ in aggregate worse outcome for the next 3 years. Not a drama, and and preventing credit agencies to downgrade Australia from the current AAA rating - but that might well be to come in the not too distant future. It will probably depend on the priding for Australia´s major export goods, iron ore and coal. I think it´s more or less common sense, that prices for iron ore and coking/termal coal especially will come down next year - the question is, by how much! I would have thought, that the market is pricing in a quite substantial setback for those commodity prices already - in the currency, as well as in share prices of the relevant producers.

Base metals are having a very weak day in London. I think some doubts are creeping in as to Trump´s spending policy ( especially infrastructure ). His chief economic advisor, gary Cohen, warned last night, that the new government would need to have it´s sights on the effects of Trump´s planned policy on a potential even stronegr US$, emerging markets debt, and interest rates....reality is slowly biting, perhaps?

The US$ gold price is having some recovery, trading at 1140 US$/oz in the moment...in A$-terms, it has a nice rebound from a low of 1517 A$/oz last week, to 1570 in the moment. That´s actually not too bad! 1570 A$ is a price all established Australian producers can easily deal with.

Interesting for Australian gold stocks is the fact, that St Barbara, Saracen, Resolute are all declared buyers of assets - and all of them are cashed up. SBM reported today, that they are now holding 70 mill A$ in net cash, while generating very meaningful free cash from Leonora. I guess Northern Star is concentrating on exploration, while Evolution is digesting it´s recent aquisitions - but both might well be buyers for the right assets as well.

Highfield - we have not heard a lot of them recently! The share price has been pretty volatile, following to some degree the up´s & downs of global potash producers, but also some short covering/shorting of the stock. They updated the market today with regards to their enviromental permit for the new mine in Spain. The news for somewaht disappointing to me, as the ministry only on the 16th of Dec has forwarded them with detailed questions arising out of their consultancy with regional authorities. They have given Highfield 3 month to answer those. Thank´s god, HFR will be much faster in replying, as there is nothing really unexpected in those questions, and nothing which cannot be easily answered. Highfield´s management has been very happy with the letter, as they interprete this as to some action, finally. One thing is for sure: Spain is in desperate need of more employment, and regional governments have been very supportive all the way through.

Breaker - the company is progressing very well on their target to demonstrate up to 4.4 km of strike length with mineralisation. Today´s results included 39m with 3,22g gold; 12 m with 1,52g gold, as well as some re-assaying of previous results, resulting in nice upgrades: 20 m at 6,87g from previous 4,84g; 8m with 4.69g from previous 2,07g. Talk in the market is, that they are well on their way to a resource of 1 mill oz plus. Considered this dreadful market for gold stocks, BRB have done really well, and for the first time in years, they are also well cashed up and spend money, as they need to! One of the above mentioned gold producers might well start to have a look at Breaker.

Kasbah - as I reported, the merger with Asian Mineral Resources has fallen through...and has been replaced by a new deal: Pala Investment is taking a placement to raise 3.7 Mill$ at 0,027A$, which is a premium of 12% to the recent share price. Pala had already lent 1 Mill$ to Kasbah, which had no cash left. Under the circumstances, I guess a fair deal. The placement will be followed by a 1:6 rights issue to all shareholders at 0,023 - and unsurprisingly, Pala has "offered" to underwrite it. looking at the wording, Kasbah is now trying to find outside-underwriters for the transaction. If unsuccesfull, and assumed 100% shortfall of the rights issue, Pala could theoretically end up with 25% of near control. But I do not believe, that this will happen, as some investors should be attracted to a tin-play at teh current level of the tin price, and a positive outlook.

I will take up my rights.

Have a nice evening

Schröder Equities GmbH

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Geschäftsführer: Wilhelm Schröder

General - Perseus - Independence - Troy

Good afternoon

a few investors getting pretty nervous for their gold holdings...falling like a stone and currently trading at 1126 US$!

Yellen´s commentary to target 3 interest rate hikes next year are creating a few headaches...but let´s face it: 3 further interest rate hikes = 1.5% rate! Is that disturbing? Certainly it´s not, and if equity markets are right with the recent bullish sentiment, the economy will be strong next year, and 1.5% expected as at today, might look only very low by this time next year! Rising interest rates have historically been positive for commodities - obviously, such a scenario normally is the case, when the economy is strong. And the metals are actually holding up quite well today - they are hardly changed.

I fear gold will definitely test 1100, and potentially the recent low of 1050 US$/oz...not funny, but not a drama for most companies. But it´s worthwhile to look at the balance sheet and the cost of production again within your portfolio of gold stocks - if you still have some! The US$ has broken the chart resistance to the upside, and could go some 15% higher against Euro - well, at least on the charts.Such a scenario - rising rates, rising $, strong economy, would obviously be bearish for gold on all fronts!!

In hindsight, Resolute have done extremely well in doing this large placement at 1.96 A$/share, which looked like not being needed at the time...with gold at nearly 1100, it might actually be needed! Same for Troy - had they not raised 40 mill at 0,36 A$ in Okt, they would be running the risk of bancrupcy today! Same for Doray....and I guess a few others!

Evolution, as usual, has done relatively well - ok, they have build up some debt - but they have also bought themselves good exposure to copper, which is looking good, and have sold forward some 630.000 oz at 1634 A$ vs 1530 A$ gold price today. I have run some back-on-the envelope numbers on them...the company should still generate some 290 mill A$ free cash at current price of gold ( 1530 A$ ), after all costs incl exploration and headoffice, but before finance costs for 630 mill A$ of debt - might be 40 Mill A$ in interest, but I do not know. That is a pretty comfortable situation....but on the charts, they are only a buy at around 1.50-1.60 A$/share. And that could happen very quickly, if gold falls another 40-50$....

Perseus - one of my favourites ( even though I just warned of them a few days ago for reason of outperformance..), came out with a pretty bad update today. Production guidance for the current half cut by 10-20.000 oz, due to a longer than planned plant shut-down, and lower than expected grades at Edikan. Sissingue had to cut 20% of the reserve estimate, and will have to change the mine plan...this resulted in lower bank-finance available to build it...and a construction period 4 month longer, to better match the capex with free cash generated from Edikan.

On the positive side, the upgraded plant is doing very well, and all larger capex ( pre-strip + relocation ) at Edikan has been spent. They have left the guidance for the 1st half cy 2017 unchanged at this stage, at 125-140.000 oz.

Still, this is a reasonably bad announcement for a stock, which has substantially outperformed the market recently.

Troy Resources - yesterday I looked at the stock, as Macquarie had initiated coverage, and I thought, that they had coughed enough bad news , and would be worth accumulating. I was lucky not to write about them, as they updated the market today.....Their open pit experiences some unstable ground conditions of one of their pit walls, which has restricted access to some of their higher grade areas in the pit. That is something nobody wants to hear!!! Guidance for the calendar year has been reduced to 60-65.000 oz from 70.80.000 oz - and obviously, costs will also be higher. These guys are going from nightmare to nightmare! I feel very sorry for the analyst - starting coverage on a day of a warning like the above is very unlucky indeed!!

Independence Group - came out with a pretty positive update for their Tropicana JV with Anglo today. The plant is running at the increased rate of 7.5 mtpa, and they are targeting an increase to 7.9 mtpa through fine tuning. They have increased the minin rate as well, enabling them to stockpile low grade ore, and process higehr grade material for the enxt 4 years at least, which increases production to around 470.000 oz p.a. ( 30% owned by IGO ). Reserves have been increased by 1.18 mill oz to 3.8 mill oz, and there is more to come next year from Long island and Boston Shaker orebodies. All of the above should have a very positive effect. Just the other day, the company had reported, that the comissioning of their first class nickel mine Nova had started, which will ramp up to full production of nearly 30.000tpa of nickel by the middle of next year. And lastly, their pretty average zinc operation is profiting greatly from high zinc/lead/copper prices. The stock is not that cheap - but they could be a good way early next year to get some safe exposure to a ( hopefully ) bottoming gold market.

Have a nice evening

Schröder Equities GmbH

Seitzstr.7a

80538 München

Tel. +49-89-4613440-0

Fax +49-89-4613440-10

email: wschroeder@schroeder-equities.com

website: www.schroeder-equities.com

eingetragen im HR München, HRB 166985

Geschäftsführer: Wilhelm Schröder