Market Update

General

Good afternoon

Chinese numbers good today - IP +6,3% ( just ahead of exp ) and Fixed Asset Investment + 8.9% both accelerated, while Retail Sales were up by only 9,5% - below expectations. Overall, good for resources demand! And are ALL analysts as well as ALL large producers in their comments wrong?? Iron ore stronmg today, just 4% below the recent high now, while Steel is making a fresh high today. Such a long and sustained, very high price level cannot just be explained by Chinese speculators. Looking at the fundamentals, though ( or at least what we perceive as "the fundamentals" ), I would agree, that prices just have to come back....

US PPI rises stronger than expected, driven by energy.

Funny enough, the prices of large producers BHP/RIO/VALE have been under strong pressure, and something clearly has to give - at today´s spot prices, RIO´s earnings after tax would be 50% higehr than consensus numbers! And using consensus, RIO is only trading at a PE of 10 and 5,5% div-yield!

The oil price took a beating today, as Saudi Arabia confirms, that tehy have increased production in February. they are clearly not prepared to hold the babay ( of production cuts ) alone!

Escondida still on strike and no end in sight, the second largest producer of concentrate, Grasberg, still haggling with the Indonesian government, and a short strike ( well, for now at least ) at the 5th largest producer in Peru....The shortage of concentrate will only now begin to show up in copper cathode production, while Chinese demand is only now starting to come into gear following the New Year Holiday.

Mr. Duterte, the Phillippino maniac, is toying with the idea of a total mining ban...While I´d like that for my Australian nickel producers, his behaviour is obviously pretty irrational!

Metals turned around nicely today, following some weakness in the morning.

Glencore - are selling some of their smaller zinc assets into Trevali, and will emerge as a 25% shareholder in the Canadian zinc miner. Looks like tehy might use Trevali as a holder for their smaller zinc assets.

Have a nice evening

General - Index-reweighting - Perseus

Good afternoon

Western Australia, home to the majority of Australian mining companies, and the base of 50% or so of the world´s iron ore production, has a new government! Labor has won the election on the weekend, as the Liberal Party got the bill for it´s financial mismanagement of the last 10 years. From what I am hearing, no drama to have Labor , as it can´t get much worse than with the Liberals! More important for the iron ore miners is, that the candidate, who has been lobbying for a 20-fold increase in royalties, has lost many votes vs previous polls...

Lots of noice surrounding the looming gas shortage on the East Coast of Australia. McKinsey believe, that unless an additional 10 bill A$ will be spent over the next few years, gas prices will double to 12$ from the current price of 6$ - if big capex going into the industry, they still forecast a gas price of 8$ by 2020.

Iron Ore and Steel Rebar very strong today - in the case of steel, trading just about at a new high! Things can´t be as bad as recent share price action would make us believe!

Base metals also very strong - nickel, which got hit the hardest last week, is currently up by 3.6%, while gold is holding above 1204 US$. Gold stocks continue their strong performance from Friday, and in Australia today ( GDXJ us currently up by 10% from the close last Thursday! )

GDX and GDXJ- the large ( and often price-setting! ) gold stock ETF´s, will reweight on Friday at the market close. Australian stocks get nicely re-weighted - I am seeing dirrent views to as how many shares need to be bought, but as the buying will be spread across all names, it should have a positive effect.

Perseus Mining - has got a 60 Mill US$ financing from Macquarie: 40 Mill for the development of Sissingue, and 20 Mill US$ in working capital for Edikan. The way Edikan is going in the moment, tehse funds will not be needed: From a bad Dec-Quarter, producing just 32.500 oz, production in the current Quarter up to the 10th of March has already exceeded that, and is 37.800 Oz. This is on track to deliver on guidance of between 90-100.000 oz this Half Year ( seems to eb on track for just under 47.000 oz this Quarter ). The mine has been cash flow positive since December. As I said earlier - if PRU can deliver on it´s promises, it´s cheap!

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general

Good afternoon

Import Prices in the US have risen 4.6%, and PPI in China up by 7.8% - both a little stronger than expected. More indications for inflation...while Draghi expects EU-inflation to come in at +1.7% for 2017 ( vs earleir exp of 1.3% ), but stay roughly unchanged for 2018 and 2019.

China to do nothing new on coal curbs...iron ore finally under 90$/t. Major stocks like BHP, RIO and Anglo have been under a lot of pressure from profit-taking very recently - probably a great busing opportunity for those, who are still underweight resources!

A lot of profit-taking in industrial metals, still. Strange things are happening on the LME, where copepr stocks have gone up extremely strongly over the last 4 days, while cancelled warrants are very high - indicating a lot of copper to be withdrawn from the LME. In any case, Treatment Charges of copper smelters ( the costs of smelting copper concentrate into copper cathode ) are at a 4-year low, indicating a shortage of copper concentrates. Also very conflicting messages from Indonesia and the Phillippines with regards to nickel ore...we will find out. I still believe, that metal markets are looking good this year, based on supply & demand...

I fear not much more coming to my mind today!

have a nice evening!

General - Lucapa - Prairie - Panoramic

Good afternoon

German Industrial Produktion in January very strong MoM, but just unchanged YoY...forecasters confident of manufacturing looking good.

May looses again in the House of Lords...we punish the POM´s 10:2 in two matches against Arsenal ( ok, with a bit of luck as well! )

Metals are little changed today, while the strike at Escondida drags on, with no end in sight. More details are emerging from Indonesia re the ore export ban. It looks like under specific circumstances, the same amount of ore may be exported ( only sub 1.7% nickel content ), which is smelted locally...From what I have been reading, approx nickel ore for the production of 88.000t of nickel in pig iron might be exported. negative for nickel, but not terrible...

Chinese steel exports are very low in Feb, pointing to very strong, local consumption.

Lucapa Diamonds - receives anoth 7.3 mill$ pay out from the JV, which operates the Lulo Diamond Mine. Important for them, as tehy can make ( hopefully ) good use of it by developing their new asset in lesotho, which would be their second mine and which would derisk the company somewhat from a single mine, singlecountry alluvial producer.

Prairie Mining - excellent announcement today, which seemingly did not interest anyone: Results of their marketing study, which was done as part of the scoping study to be announced shortly, have been very positive. The cost of shippinmg a t of Debiensko hard coking coal to customers in Central Europe will be only about 5$/t, while costs from Australia and the US, the two major suppliers so far, are 38US$ and 33 US$ resp. Historically, the cost advantage for European coal has been split 50.50 between miner and consumer. Early indications make PDZ believe, that they could do better than that, giving them a roughly 15$ net advantage. The rail system could do with an additional 4 mt of coal p.a., which would be sufficient. And finally, Europe currently imports at least 20 millt p.a. from Australia alone. This material needs about 60 days to reach the steel works in Europe, while the Debiensko coal could be at the customers door within 24 hours, with obvious benefits for the consumer. In my opinion, a very positive bit of newas, which should be able to be honoured by the market a little more, once the scoping study will be out in a week or two!

Panoramic - Macquarie today initiated coverage on an interesting stock, Clean Teq, which is listed in Australia, and has Robert Friedland as it´s largest shareholder. This research shows us, why PAN are holding at todays level, even though the nickel price if anything, is under a bit of pressure: Macquarie have a price target of 1.50$ for this 1$ stock, capped at 500 Mill A$ today. The plan is to produce 18.000t of nickel and 3.000t of cobalt sulfate in 5 years time, following cap ex of about 1,2 bill A$, giving the stock an EV of about 1.7 bill A$. PAN could produce 11.000t of Ni and 650t of cobalt within a few month, after capex of about 30 mill$, with a market cap of 158 Mill A$ as at today , giving it an "enterprise value" ( market cap - cash + capex ) of about 175 mill A$. I think it´s pretty obvious, which stock I prefer!

Have a nice evening

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eingetragen im HR München, HRB 166985

Geschäftsführer: Wilhelm Schröder

Gold stocks - Finders

Good afternoon

german factory orders were pretty bad, but they are notorious for being very volatile. I think business confidence, consumer confidence etc are all showing, that it´s in good shape.

Let´s face it - except for making a fool out of himself, Trump has not achieved anything so far - and that´s what the markets are showing us. We should not forget, though, that the world economy is in pretty good shape in the moment - it´s not all depending on this strange and dangerous man! He is creating new reasons to buy some gold just about every day, regardless what the FED will do - and Yellen´s action should be fully accepted by now anyway.

Metals are currently seeing some profit taking - investors are taking some chips of the table. I think this is wrong - but that´s how markets are working, and is nothing to worry, in my opinion.

What happened in gold stocks recently is quite remarkable...They have had a massive run until mid-February, based on record inflows into the Van Eck-vehicles. Since then, gold stocks have given up about 20% from the recent top, while physical gold has fallen less than 1%! As you will remember, we found it very hard to find some value in gold stocks more recently, but this is changing now. The A$ gold price has done nothing this year, oscillating around 1600 A$/oz, while companies have done a good job over the last 18 month to get their house in order. A company like Evolution is generating massive, free cash from it´s mines at the current gold price, and is paying back debt as fast as they can. I think the value is certainly back here - when a serious gold miner trades at 10x free cash flow, it´s a bargain!

Finders - updated yesterday re their Lerokis deposit, a small add-on resource for their existing copper project. It´s 2-3 km from existing plant, and will probably be quite small - but doing abck on the envelope calculations, it should add at least 6 month of production. Every year of additional production to the current 7 years will add approx 60 mill A$ to the projects cash flow - hence 6 month even are significant for a stock just capped at 131 mill A$ as at today. All they have been doing is actually assaying some old geotechnical holes - which resulted in some very nice intersections of 12m with 3,8% copper, 24m with 5,84%; 26m with 8% and also 3.6% zinc, which is interesting. I think the chance that this little deposit will be adding mine life is higher than 90%, even though a resource has not been calculated as yet. At this stage, all free cash will go to debt service - but debt will be gone by the middle of next year at the current rate. And I am very hopeful, that the existing mine will start producing above nameplate very soon. There is a realistic chance, that the 73.5%-owned project will produce 30.000t of copper at cash costs of 1$/lb in the coming financial year. I strongly believe, that FND should be trading roughly 50% higher than today. Triggers will be success of their ( at this stage ) very modest exploration programm, or rising production from fine-tuning the new operation. The downside might be another placement ( at least market-wise ), as I am sure, that FND would like to buy out minority partner Daewoo. This would be a very positive move and - depending on price - most probably value-enhancing, but would require more equity initially. If the latter should happen - and I have absolutely NO indication for this - it would be a great buying opportunity. I am still holding a large position in FND.

Have a nice evening