General - Lynas update

Good afternoon

India growing with 6.1% in the first Quarter - 1% less than expected. I think this is a very formidable number, though, considered the "cash-withdrawal" experiment they have been through, and which still impacted the economy in the first Quarter. .

US labor market no surprises, while manufacturing continues to expand.

Base metals + gold largely unchanged today

Lynas - had a chat to the company today. They confirm, that prices are firming - obviously, from a low basis - amidst a more serious crackdown by authorities on enviromentally damaging mines in China. Demand is strong, and not only improving for Nd/Pr, which are the main rare earth elements used for batteries. I made a serious beginners mistake the other day in my back on the envelope numbers: While Lynas does produce Nd/Pr as their most important Rare Earth, in tonnage, that´s only about 31% of their production ( roughly 440t/month ). Another 5% are Heavy Rare Earth, and anothe 70% the rest, mainly Cerium/Lantanium, which costs about 2$ kg as opposed to 36.50$ for Nd/Pr. Their basket price is probably just under 16 US$/kg. Their operations are going very well - at times above name plate - and their cash operating costs incl administartion/head office are "in the low teens", which is excellent, and as you know, the company managed to make an operating profit of 12 mill A$ or so last Quarter. It´s not easy to reconcile all the numbers in the Quarterly, as the company does not give an exact number for costs, as well as no split-up on revenue. In any case, the fast majority of revenue is made from Nd/Pr - should be around 58 MillA$last Quarter from 69 Mill A$ in sales. If you extrapolate this with a price of 75US$ vs the current 36US$/kg Nd/Pr, sales should ceteris paribus rise to just under 100 Mill US$ on a Quarterly basis - operating profits should be roughly 200 Mill A$/year ( note the different currency being used in product price and revenue - the latter being in A$ ). The current net debt position is 400 Mill US$ = 570 Mill A$. 

So - a heavily indebted company, still - even using much higehr Nd/Pr prices  for these numbers. ON an EV-basis, LYC is capped at 570 + 302 Mill A$ market cap = 870 Mill A$, of 4x operating profit. Certainly not a bargain, given the risk! But it´s the only, significant producer of Rare Earth in the Western World, and should command a premium. Don´t forget, that 6 years back, the Nd/Pr price has been as high as 230 US$ / kg! Every additional 40 US$ ( from 75 US$/kg ) would give Lynas an extra 250 Mill A$ or so in operating profit. As you can see, the leverage is immense - and I think it´s fair to say, that production of Rare Earth will not be nearly as flexible as say production of Lithium. So if you are really bullish on the take-up of electric cars in the future, I think LYC ( and for that matter, PEK! ) are muich better plays than lithium stocks! The above is work in progress to some degree....all very indicative...while I am working on more exact numbers....

In any case, some food for thought in the absence of action in the resources space today!

I will spend some time tomorrow on an update of STX, following their new strategy-update today

Have a nice evening

WS

General - gold! - Breaker - West African - Genex Power

Good afternoon

Chinese PMI unchanged at 51,2 - German unemployment at record low 5.7% - Italian unemplyment falls by more than expected to 11.1% - Japanese Industrial Production highest since 2008, but it´s a volatile series - US PMI lower than expected, and falling - but still pointing to growth

South Africa on the verge of increasing black ( elite ) ownership of mines, amid other changes. That is "exactly" what the country needs!

Crazy Corbyn catching up big time to Theresa May in the polls...if he wins, would be a major ( and nasty ) surprise, still.

Holdings by gold-ETF´s rose by 100.000 oz last week, and a total of about 200.000 last month. Largest increase by a long shot into the Deutsche Bank ETF - looks like the Germans are scared by Trump ( and I am not the only one! ).. Gold is about to break the 6-year downtrend - that could be a major event - probably driven by geopolitics? Buy EVN, Buy RSG, Buy PRU, Buy WAF The main indication for gold not going through resistance though, is the unusually flat trading of gold stocks worldwide.

Breaker Resoureces - another round of very drilling results yesterday. they are on the way to a 2 ( ?) mill ounce resource? Three drill rigs drilling continously to have a first resource estimate by Dec 2017. The drilling results underpin the recent share price increase....company is well cashed up to continue at this pace until early next year - so no placement overhanging the stock. I would be very surprised not to see a new mine in the making here - the only question is size. 

West African - assay results for the deepest intersection yet, from about 400m depth, and which had visible gold in the drill core, should have been out last week. The announcement got delayed, as the company is double checking the results. NO or little gold is almost impossible - in the end, the core contained visible gold - so the only explanation for this got to be, that results have been outstanding. Every 100.000 oz of gold to the reserve/ or at least indicated resource add about 70 mill $ to the NPV of the project...I believe, that the company will already have anotehr few hundred thousand t of this very high grade stuff, may be up to 30g....The enxt resource estimate might be out for this years Digegr & Dealers Conference in early August...until then, 6 drill rigs are continously drilling. To me, this is still the best development story around, in my opinion. Like the resource, like the people, hungry neighbours around, and more than enough cash for agressive drilling until year end easily! From 150.000oz for there years and falling off thereafter, we might see a 200.000 oz producer for at least 5 years....and hopefully more drilling success to come, as this thing has not been closed off at all so far.

Genex Power - the stock has been steadily falling on little turnover - market cap is now only 60 mill A$, valuing the hydro-pump project and Stage 2 Solar Project at just 10 mill$ approx. The company is fully financed for the Stage 1 Solar Project, which will generate 50 MW and has a price guarantee from the Queensland Government for 20 years. It is on track to start producing electricity by the end of this year, as planned. The company is in the middle of negotiating a price guarantee for the Stage 2 Solar, as well as the Hydro-Pump Project. This is a rougly 500 mill$ development, and negotiations will continue for some time. What we should hear about in the next two month is a agreement with some inevstor to build the necessary power line for the new projects ( the existing power line will be fully utilised from Solar Stage 1 ), and progress on government negotiations. 

What has changed overthe last 12 month is the time table. The company had originally expected a 24 month construction period for Slage 2 and Pump-Hydro - this is now 36-42 month. Contrary to earlier expectations, construction- activities for the Pump-Hydro has to be done sequentially, and not in parallel, as hoped for. This is certainly a negative! I still believe, though, that Genex is one of the best buys around! The need for battery storage is as large as ever, as is the governments will to stabilize Australia´s energy market.

Have a nice evening

WS

General - Lucapa

Good afternoon

a meeting in 1960 between Nikita Khrushchev and the heads of NATO must have felt a bit like yesterday´s meeting between Trump and them - rude, unfriendly, opposing. There was no relationship-building - rather open attack. I am not sure whetehr we really need the NATOanymore, which  has been built in the cold war, and has members likes Turkey in it - but this was not a meeting between friends, that´s for sure!!! I might be overdoing it a bit, because i just cannot stand the guy - but even UK-US relations are strained, and that´s highly unusual! Looks like the Saudi´s are his best friends these days!

Metals looking ok - gold is steadily moving higher - highest price since 1st of May, and back to 1700 A$/oz. Nikita Trump might be responsible for this?

Lucapa Diamonds - announce interim funding for the aquisition/advancement of their second diamond asset, Mothae in Lesotho. It sounds like a promising asset, with an established resource, and trial mining in the past, which discovered a 254 ct diamond. The  existing options, exercisable at 20ct, have been underwritten, which will raise pprox 9,2 mill A$ ( fees of 6% - not cheap, but usual terms ). The underwriter will also receive 11.6 mill options, exercisable at 35ct and running for a year from issuance in Sept 2017. This is pretty expensive financing, in my opinion! I am not questioning the aquisition, but the cost of financing it. The relatively large numbers of options / their exercise have helped to depress the share price for some time - now we get anotehr set of options! At least I would have hoped for a respectable broker to underwrite this, which would guarantee some research and market support!

Not much else happening today!

have a nice evening

WS

General - Prairie Mining - Acacia

Good afternoon

Macron beats Trump with his testosterone-driven handshake, as reported by Bloomberg. So he sort of "grabbed" the guy by his .... hands! Very funny...

UK-growth pretty slack, while US labor maket numbers point to continued, strong job creation.

Metals are well supported today, while gold is very quiet.

An interesting game between Tansania and Acacia is developing. The African state accuses ACA to have understated it´s exports of concentrate by up to 10x, to cheat the state on a 5% royalty. I think this is pretty unprobable - but the dispute is on big time, and the country has halted all concentrate exports. Since this story first came up, the stock had already taken a hammering - yesterday and today, it fell by another 40%. I am not an expert on ACA, but I hink the stock is worth to have a very good look at. These things are never eaten as hot as they are cooked - and the story sounds completely ridicilous to me. Once again - country risks are very realö these days, and mining gold in countries like Australia, Canada or the US is certainly a huge advantage! Barrick owns 64% of Acacia.

Prairie Mining - the company is making progress on the approval process for it´s Lublin-based thermal coal asset. The application for a mining lease will now get started in the s econd half of this year. PDZ is - once again - pointing out very strong local and provincial suppoprt for it´s project, which would create thousands of jobs in an area, which is fully "infrastructured" and used to mining for a very long time. Perhaps more market relevant is, that Golbal Mining came out with a very positive research report on PDZ, valuing this thing at 3$ down the track. They point out, that it´s very difficult to properly valuing them at this point, especially, as a substantial amount of equity has to be raised down the track. They have used 300 mill$ in fresh equity at 50ct - I personally think, that tehy will need at least 400 mill - but that they will raise it in stages and at higher prices. In August or so, I would expect the feasibility study for Jan Karski to be announced, done in conjunction with THE Chinese shaft-building company. I would not eb surprised to see slightly lower costs than stated in the scoping study. IF PDZ would sell debiensko ( as recently speculated in the Polish press ) for say 100 Mill US$ - which would be rather cheap - the equity needs would fall top say 250 Mill US$ ( and debt of 250-300 US in debt ). Big numbers - but not unusual for new mining developements. The theretical NPV8 of PDZ would be about 3.50 A$ in such a scenario....Great story well managed by Ben Stoikovich!

Have a nice evening

WS

General - Perseus - Graphex - Sheffield

Good afternoon...sorry, two in one again!

Germany´s GDP-growth revised up for the first Quarter...investment, consumption, PMI, business confidence all very strong and better than for a long time. Europe isl doing very well...and  looking stronger than for a long time. 

Australian banks get a downgrade from S&P - profits not growing anymore, risks from property increasing...

metals not doing much today, while, while gold is trending a little higher. Trump-volatility ahead???

Perseus - Sissingue contruction is going as planned - no negative efefct from recent, political turmoil, which has quietened down again. Yaoure - as expected, the resource/reserve will be a little smaller than estimated by the previous owner. I think informed investors at least have been pretty aware of this for some time. Just by how much we will only find out in August, when the new resource estimate will be announced. I think we should expect a new feasibility study, which shows a project with slightly lower production, less plant capacity ( = lower capex ) and better grades. The market should be  happy with that - especially with the lower capex. It will be very interesting to see the costs....If PRU can show reasonable costs, this project alone could be worth the current share price, once in production. But that´s a few years from today! Ghana and their mine Edikan will be the main focus of investors. I believe, that everything is on track for the same again as last Quarter. If that will be achieved, markets will be pretty happy, I think. The mine plan has been done at 1200 US$ - so every 50$ extra should have a nice effect  on cash flow! And if gold should break 1300, this thing wouldbe a rocket at a market cap of only 1000 A$/oz production 2018 - and Yaoure not included!

And from today:

China gets downgraded by Moody`s for the first time since 1989, because of debt-problems. 

Trump meets the pope - I wonder, whether he had something to confess??

Metals seeing some profit-taking today - perhaps the precarious situation of large metal trader Noble Group depressing sentiment, and the Moody-downgrade? Following a late fall yesterday, gold is holding above 1250 US$

Graphex - the potential graphite miner has signed a term sheet with the leading  Chinese building materials company, for them to take a 50% stake against payment of 18-20 Mill US$ in the Tansanian project. Both companies have 3 monmth to complete a binding contract. Good news, valuing GPX in the mid-forties, with furtehr upside from mine expansions. The project will most probably not produce grahpite for batteries, but for inflammable building materials. This is a very strongly growing market in China, where 90% of this type of graphite is bing produced. The GPX-project should produce an excellent product, which could demand a premium price, and which could be easily doubled in size over time. AS usual, it does take a long time to do deals with Chinese, state-owned companies, especially at a time of foreing investment restrictions! But this is certainly a positive step for GPX. Some analysts have valuations far above 1$ for the stock.

ILUKA - have taken the unusual step today to announce, that they will increase the zircon price by 13% to 1100 US$/t from 1st of July. This is an unsually strong price increase from the world market leader, aguring well for otehr producers and developers, like my little Sheffield Resources, who are developing the excellent project Thunderbird in Western Australia.

Have a nice evening

WS