Market Update

Beadell - Breaker - Finders - Paringa - Peak

Good afternoon

investors are awaiting TRump´s tax plans later today. I guess the seriousness of his proposal will decide on whether the "Trump-trade" will be completely off, or be revived in the weeks ahead.

Gold stocks got hammered last night in the US, and subsequently in Australia today. Stocks gave up 5-10% of their respective market caps today - not much to do with fundamentals, though, as the gold price is just down by 2% from it´s recent closing high, and just 1% from the recent closing high in A$! Risk-Off, following the French election, certainly does not help the sentiment!

Beadell - a bad Quarterly from them today....only 28.500 oz of production in the Quarter, at a very high 1.161 US$/oz AISC. The company has burnt 17 mill A$ in the Quarter, incl exploration and corporate costs, if my calculations are right ( and I think they are! ). This is very rough indeed! The company has left guidance unchanged of 140-1500.000 oz for the full year, as tehy expect a recovery in grades, especially in the second half. And not to forget - this Quarter was a wet season Quarter, so a difficult one. Still, it was disappointing, and does help the company, as teh sharte price will stay under some pressure anyway leading up to the re-weighting of the gold index ETF on 10th of June. More recently, the company had announced a resource increase, which has also been a little disappointing in light of previously released, strong drilling results. This Quarter does not change my cautious approach towards the company!

Breaker - great drilling results again - the company is clearly on it´s way to a gold mine here! BRB is currently infill drilling the relatively wide drill spacing at the 2.2km long Borborema discovery to a 20x40m grid, with a target top release the first resource by the end of the year. The company ahs ample cash with 9.5 mill $ to do so, and has currently 3 drill rigs working. Todays results included 20m with 3,65g / 45m with 1.79g / 3m with 21 g / 7m with 8.6g / etc...so some nice high grade stuff within a lot of low grade results. Corporate costs are staying very low, and hence, of the 1.7 mill$ planned to be spent this Quarter, 1.5 mill will go straight into exploration! At this pace, BRB have nearly 6 Quarters of cash left - certainly enough to announce the first resource within 9 month or so.

Paringa - Commonwealth Bankl, the most prominent, Australian resources investor, have announced a substantial shareholding in PNL today - the second, very large fund after Australian Super, another very large and very long term, Australian fund. Good to have the validation from these guys!

Peak Resources - I could not get hold of the MD this morning - but tehy announced a potentially very significant release today. ERP, a NOrth American investor specialised in buying mining assets out of bancrupcy, are teaming up with Pala Investment from Zug, and Peak Resources to aquire Mountain Pass, the only North American rare earth mine of any substance. The ex General Manage of this mine is now the COO of Peak. This could be a very significant announcement, furtehr establishing Peak as the pre-eminent, Western producer of rare earth. More tomorrow...

Finders - a good Quarterly - well, good under the circumstances. The March Quarter is the wettest Quarter in Wetar, and the company managed to produce EBITDA of 21 Mill US$ from 6.100 t of copper production, vs 7.000t name plate., at cash costs of 1.03 US$/lb.The company had 2.250t of unsold copper ( worth 13 mill US$ ) in inventory at the Quarter end, and total exisiting project debt ( of which 74% belongs to FND ) stands at 81 mill US$. This result has been achieved despite copper grades of 1.47% vs more than 2% so far, as areas of the open pit with lower grade or have been mined. Grade will come back to normal again from late May. The reserve continues to reconcile positively with the feasibility study by +4,7%. Of interest is also, that the SX-WW plant, which is the bottleneck of the operation, exceeded name plate at times by 10%, raising hpes, that it could continuesly do so to end up with total copper procution of more than 30.000t on an annualised basis ( 74% of that belongs to FND ). For a copper producer of 22.000t at cash costs around 1 US$/lb, the stock is cheap indeed, and my target is still in the mid-twenties, up to 50% higher than today!

Have a nice evening

General - Berkeley - AAC - Gold stocks

Good afternoon

so - the French did the right thing! Will be interesting to watch politics there - firstly, whether Macron will eventually win, and secondly, whether he will be able to run the country without having a big party behind himself!

Gold is holding up ok so far, while ( surprisingly? ) ETF inflows continue. The US$ received a pounding - this might carry on for a bit, but European problems remain unsolved.

The German IFO Index for business confidence has been very strong yesterday. It looks like we are on a sustainable growth path here in Europe.

The new focus on mineral sands continued yesterday, with Iluka hitting yet another recent high. There could be a substantial amount of short covering involved, as ILU has been a very heavily shorted stock. It will be hurting a few players, and I don´t feel sorry for them!

Berkeley - is continuing to ramp up it´s uranium project in Spain. Cost optmisation is very sucecsfull for this project, which will be a very low cost producer anyway. They have signed a preliminary agreement with a Glencore subsidiary to supply reagent at substantially lower prices than budegeted until 2021 ( reagent costs are about 30% of total operating costs ). Final and "highly competitive" proposals from several reputed mining contractors have been received as well, indicating perhaps further reduced costs, while the first, substantial order for equipment resulted in a 20% cost saving for the crushing circuit vs the Feasibility study. The main question, though, remains offtake/proejct participation/ financing of the mine, which still remains a deal to be done! This will be the major price trigger for the stock, which has come down quite a long way from highs earlier this year, when investors got excited about uranium.

Australian Agricultural - the company reported this years valuation of their property yesterday, coming in 44.3 mill$ higher than last year - a 7% increase, which sounds sensible to me. The stock has recovered about 20% from recent lows, and while I would not buy more at current prices, it´s still trading on the cheap side.

Euroz - the well respected, Perth-based broker and wealth manager is an interesting and probably conservative way to ride the commodity cycle. The profits on the broking side are generally coming from capital markets activity, which naturally is much higher in positive resources markets - and accordingly, had a good last half year. The group has between 116-and 125 mill A$ in cash & investments, hence their broking and wealth business is only valued at around 75 Mill A$. The company has been building a sizeable and growing wealth business, managing more than 1.1 bill A$ now, and growing. Over the enxt few years, I can see this materially contributing to profits - and for now, it´s probably valued at zero. Nearly half of the company is owned by staff, while institutions are controlling only 11% of the stock - this is also growing. Euroz have a very strong history of paying dividends, and I would not be surprised to see y good financial year end div for them ( 5-6ct/share? ) to trade at a total div-yield of 5% or so. Historically, they have paid a div continously since 2007 of up to 27ct/share. Unfortunately, the stock is not very liquid - but with a bit of patience, one can build a position ( 90.000 A$/day is average turnover ). I have been holding a position for more than a year now.

Gold Stocks - I looked at the real blue chips, Newmont and Barrick - or at least what the market perceives as blue chips. There has been an interesting article in the Mining Journal today, talking about the vanishing reserves of the 10 major gold miners. Their combined reserves fell from 700 mill oz to 500 mill oz since 2012. The main reason for this is the lack of major discoveries for some years now - the otehr one is depletion by production ( I am not sure, but I would imaginne, that some "reserves" have been lost because of a lower gold price used to calculate them ). In any case - they are falling big time. Furthermore, the article argues, that a fair chunk of these "reserves" will never be produced - Donlin Creek and Pascua-Lama are described as examples. Similary, the old story of these "blue chips" having very long term production, is losing it´s rationale....It´s right for some, but wrong for others - the large Americans have between 11- and 16 years of production left in reserves ( and as seen above, some of these "reserves" will never be produced from! ).

So what´s the point in investing them? My little Evolution has top management, much lower debt vs EBITDA or assets than all of these guys, growth in reserves/mine life ( even though it´s just above 8 years now and hence, lower still than the large US-names ), and clearly, a much lower valuation:

EVN trades at a market cap of 3 bill US$, for production of 830.000 oz this year, EBITDA of 600 mill US$, Net profit 148 Mill US$ . That is 5x EBITDA / 20x net profit / 3.600 US$/oz of production

Newcrest trades at a market cap of 13.6 bill US$, for production of 2.4 mill oz this year, EBITDA of 1.06 bill US$, net profit of 400 mill US$. That is 13x EBITDA / 30x net profit/5.600 US$/oz of production

Newmont trades at a market cap of 18 bill US$, for production of 5 mill oz, EBITDA of 2,4 bill US$, net profit of 500 mill. That is 7.5x EBITDA / 36x net profit / 3.600 US$/oz production

Barrick trades at a market cap of 22 bill US$, for production of 5.5 mill oz, EBITDA of 4 bill US$, net profit of 1 bill US$. That is 5,8x EBITDA / 23x net profit / 4.200 US$/oz of production

Evolution has lower debt levels than all of the above, lower country risk, lower costs, growth of reserves + production...why not buy them for gold exposure? All of EVN´sproduction is in Australia....not Africa, South America or Papua, as for the other companies ( + North America, certainly )

Have a nice evening

General - Resolute - Sheffield Resources

Good afternoon

PMI in Germany slightly weaker last month, driven by services - but still at a very expansionary level. The German economy is doing well! And the European PMI is very strong, surprisingly driven by France. US PMI still strong, but weaker - Housing Market still in full swing!

A German/Russian man buys put options, and then throws a bomb at Borussia Dortmund ( which is listed )....my god, the world is getting crazier by the day!

The Gold ETF had it´s biggest inflow for some time on Wednesday, but an outflow yesterday. In any case, the interest in physical gold is back, clearly! As it should....

Mr.Gorsuch´s first High Court vote clears the way for the execution of a death-penalty....well done, Mr.Gorsuch, I hope you sleep well!!!!

The French election taking place on Sunday - let´s hope for the Frogs to be sensible!

Resolute - A good Quarterly from the company, as mentioned yesterday, and guidance for the financial year has been increased. The company is not making all that much free cash in the moment, though - Syama in Mali will always be a relatively high cost producer, at least including all necessary re-investment. But it´s a long-life operation, and not fully explored as yet, as shown by recent, excellent drilling results. RSG are working on a programm in the moment to increase recoveries, which would be helpful. In Australia, the Ravenswood Mine is currently also a very high cost operation, and is even loosing them some money. That will change next year, when the underground will be in full production. And lastly, Bibiani, the old Anglo mine...not a fantastic asset so far, but recent exploration has delivered some very positive results. With Bibiani ( that´s not a done deal as yet, and would produce 100.000 oz p.a. from 2019 ), RSG will approach 450.000oz of yearly production - not bad at all for the current 600 Mill A$ in EV, and very good leverage to a higher gold price.

Resolute was very lucky - or smart - to raise 150 mill A$ at 1,96A$ late in 2016....Those funds will undoubtedly burn a hope into Mr.Welborns pocket....RSG have aquired positions in Kilo Goldmines, and I think ( not confirmed officially ) Oklo Resources, two African explorers...

RSG have two long term assets, high costs, and an excellent balance sheet - one can see, why gold bulls are very attracted to this company. Van Eck´s Index ETF will have to divest 60-70 Mill shares in June - but I think arbitrage-players have already started to accommodate this. At current levels I do like RSG, and behind Perseus, they are my No.2-pick for investors, who want leverage to a stronger price for bullion

Sheffield - this is an interesting, but for most investors over here also an unusual one...Zircon and Ilmenite are no products, most of us know a lot about - even though we use this stuff numerous times during the day! Th emajor use for Zircon is in ceramics, while 90% of TiO2, Titanium Dioxide ( which isprocessed off Ilmenite ), is being used as a pigment for paint, paper and plastic. The market has been in the doldrums for a few years, but has recovered lately, as witnessed by very strong results especially from Iluka ILU, the worlds largest, single producer of mineral sands ( the otehr one being RIO ). Iluka´s sales will start falling soon, as stock piles are being worked down, and reserves are falling. SFX have 100% ownership of a very large deposit in Western Australia, close to the cost/port/infrastructur, for which tehy have just finished a bankable feasibility study. For a detaield presentation, you should look up www.sheffieldresources.com.au - some excellent material there. The stock has been valued by analysts at 1.50 A$ vs current share price of 59ct - the usual problem being financing, which is estimated to be 350 Mill A$ in total vs a current market cap of 100 Mill A$. The precarious position of Iluka, which is the world´s dominant producer, in terms of reserves etc make SFX an obvious takeover target for ILU ( which has a market cap of 3.6 Bill A$!). I think you should have a very good look at this one...before I repeat all the big numbers, please look up their latest presentation.

have a great weekend!

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General - Evolution - St Barbara - Resolute

Good afternoon

unfortunately for our commodity markets, Mr.Trump has lost a lot of credibility over the last few month, when it comes to delivery of his "grand plan" to boost infrastructure, and cut taxes to boost the US-economy...Running a country in a very complex world does take a bit more than tweeting a few stupid words!

US 10 year bonds, as well as German bonds, are back to where they traded last in early Nov 2016 - and metals/minerals have generally been under pressure lately, while equities have lost their momentum as well.

Only gold has had a good run over the last few weeks - no wonder perhaps, as geopolitical tensions have been rising, and interest rates falling.

The Quarterly reporting season is in full swing now:

Evolution - getting almost boring, as they deliver again and again and again! Production of 203.000 oz a tounch lower than previous Quarter, as expected - compnay on track to deliver guidance for the full year of 800-860.000oz. Including the expected 210.000oz for the current Quarter, we should arrive at 835-840.000 oz for thr full year: But the Quarter actually had a pleasant surprise: That is on costs! AISC of 840 A$/oz or 637 US$ are nothing short of exceptional...and the company is now guiding for AISC for the full financial year at the lower end of guidance ( 900-960 A$/oz ), which implies another Quarter with AISC below 900 A$, and probably rather 850 A$/oz! At current gold price and forex, Evolution´s mines deliver 500 mill A$+ in free cash per annum! Some of the larger competitors would love to be able to show these kind of numbers. And currently, the A$ gold prise is 90$ higher than the average of last Quarter....

Standouts were Ernest Henry, helped by an improving copper price, and especially Mt Carlton, which had AISC of only 509 A$/oz, delivering a net mine cash flow of a staggering 22.2 mill A$ in the Quarter ( and that was despite a 5 day shut-down due to mega-cyclone Debbi! )! The downside was still Edna May - that´s the smallest mine, but also the weakest one...The current Quarter will see a much improved Quarter for Edna May, though. The mine is not up to EVN´s standard, and nobody would be surprised, if they would sell it, once performance has been turned around.

The updated reserve statement was also very positive - after mining depletion of the last 12 month month, reserves increased by about 200.000 oz + the aquired 960.000oz of reserves of Ernest Henry. EVN now have an average mine life as per reserves only of more than 8 years, and is continuing to increase this, especially at Cowal, their largest mine, and Mt Carlton, their most profitable one ( except for Ernest Henry after copper.-credits ). Newcrest might still be the No1 by mine life and reserves - but EVN is Australia´s best gold miner, in my opinion!!

Resolute - reported their Quarter as well. Much more compelx than EVN - I will need to do more work on it tomorrow - free cash flow has not been that great, and I will need to check on this. But guidance for the fully ear has been increased for production, and exploration ahs been very succesfull....company is extremely sound, with more than 260 mill A$ net cash in the bank = 30% of market cap. More tomorrow.

St Barbara - a very good Quarterly, as indicated by an earlier announcement. The company generated free cash of 68 Mill A$ in the Quarter, from 95.300 oz at AISC of 862 A$/oz! Gwalia was teh standout at AISC of 786 A$/oz, but Simberia at AISC of 1.025 A$ generated cash as well. The company has incerase guidance by 5.000oz, and decreased cost guidance also slightly. But Simberi is not really going anywhere, I think, and has short mine life - while Gwalia is a very deep mine. They are handling it VERY well - but effectively, SBM are a one-mine stock. Given the stock overhang from Van Eck´s large position, there is not really a compelling reason to buy them here. The incerasing cash pile will burn a hole into their pocket....Pehaps the fully financed Dacian is starting to become attractive for them?? I am purely guessing here.

Have a nice evening

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General - Perseus - Panoramic - Peak - West African - Newcrest

Good afternoon

back from 38 degrees in Dubai, into the Munich snow!! crazy weather here!

Theresa May is calling ( very ) early elections for June, to give here a strong manadate for Brexit-talks...Sterling is up strongly.

The IMF increases world GDP forecast to 3.5% from 3.4%, but warns of protectionism...while China GDP surprises on the upside in the first Quarter, growing by 6.9%. Don´t ask me, why base metal prices are down today...the only "reason" I can see is, that tehy are weaker in sympathy with falling prices for iron ore and steel rebar lately.

India gold imports very strong last month, changing the recent trend and partially explaining the strength of gold. Holdings of the SPDR are at the highest since mid December as well - no wonder amid the geopolitical instability, with elections in France looking a very tight race between the top 4 contenders - Le Pen being one of them!! The A$ gold price is currently trading a very nice 1703 A$/oz!!

Junior Gold Miners Index GDXJ in the States is changing the criteria, especially the size of companies included will not have a top limit of 1.5 bill US$, but 5 bill US$. The growing size of the ETF has made changes necessary, as the fund has been holding close to 20% of some companies. This move implies heavy selling for some companies, which have Van Eck as a very large shareholder, like SBM, RSG, BDR or PRU, while others like EVN OGC and NST will see large buying. I do not like this stuff....but it will probably create some nice trading opportunities. The Index change will take place in June.

Perseus - excellent Quarterly Report out last week, as foreshadowed. Production of 48.600 oz was slightly better than teh market had expected, even following some positive early updates by the company. Costs were pretty positive as well, at 1.098 US$ all-in site costs. Better grades as well as good mill performance and recovery rates were responsible for the good Quarter. The Youre BFS will be finished in Oct/Noc - 80% of the drilling had been completed at Quarter end. Sissingue construction is in full swing and the mine will produce first gold in the March-Quarter 2018. The market response to the result has bene positive, but still disappointing - I think just one good Quarter is not enough to fully recover a positive image. Today the stock came under pressure from the GDXJ Index announcement - but fundamentally, the stock is very cheap, if it can stick to the updated guidance! Don´t forget, that PRU should be one of the most sensitive stocks to changes in the gold price, as costs are relatively high, and the market cap is very low vs the amount of gold produced, and vs resources/reserves. I could well imagine, that one more capital raising will be necessary for the large Yaoure development - but not this year. The company is very fully financed now for Sissingue, while Edikan should produce rising free cash flow.

Panoramic - a downhole electromagnetic survey finished in March has discovered a very large EM source of 800m x 450m. This type of exploration has been very effective in the past for Savannah. Drilling will be done soon to test this EM, which could add several years of mine life by itself. The only "minor" problem: better nickel prices are needed. Macquarie estimates, that stainless steel production of the nickel intensive 300-series in the March Quarter in China has been growing by nearly 9%, auguring very well for demand.

Peak Resources - published excellent results from the BFS for their Rare Earth project in Tansania ( with processing in BREXIT-land ): Operating costs of 34 US$/kg NdPr Oxide ( vs current spot of 42 US$/kg ), post tax NPV10 of 445 mill US$ ( NPV8 of 633 mill US$ ) / 30 years mine life / free cash flow p.a. of 104 mill$. The mine/processing facilities will produce 2.420t of NdPR Oxide p.a., 530t of Samarium/Europium Carbonate, 3000t of Cerium- and 6900t of Lanthanum carbonate. The above numbers are for 100% - PEK own 75% of the project.

The company has managed to cut operating costs as well as capex significantly from the PFS. Total pre-production capex will be 356 mill US$ ( of which 267 Mill as PEK´s share ), which is a lot of money for a company with a market cap of 47 mill A$. But the coner stone shareholders Appian Natural Resources Fund, and the World Bank´s International Finance Corp will be a big asset here. Ultimately, I still believe, that somebody from the car/battery industry should come up with a nice proposal. Nothing has fundamentally changed from 10 years ago: China is producing more than 90% of the world´s Rare Earth, and the only mine outside of any significance is the one owned by Lynas Corp, which is completely contreolled by Japanese financiers...Everybody is talking about lithium - many are talking about graphite - it took the market 12 month to start talking cobalt - yet nobody is talking about Rare Earth!!! Buy straw hats in winter - this is a great story!

West African - continue to have significant exploration success, with very high grade interstions of 3-4 m at 50-and 100g respectively. They are doing everything right, while the gold price is rising - yet the share price cannot continue with the recent recovery. Nothing wrong with the story - it´s partially the disappointing performance of gold stocks vs gold price generally over recent month. In this enviroment, it probably needs more than a good hole here & there, and more important news like new reserve statement and updated feasibility study in the 3rd Quarter. Until then, we should see many exploration results, as 6 drigs are currently drilling.

Newcrest - the vagaries of mining! A "seismic event" - which in fact is nothing else but a small earthquake! - has hit their very important Cadia Underground Mine. This is happening once in a while and is nothing to question the longer term viability of the project, but it constrains production in the short run. No major damage has been done, but Macquarie estimates, that the mine will produce from low grade stock pile for the next 6-8 weeks.

Have a nice evening

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