Market Update

General - Hot Chili - West African - Panoramic

Good afternoon

and here we go again….it seems that some tarde agreement might not be that far away. Politics, since Trump entered the scene, are absolutely unpredictable these days. The NATO meeting seems to be a farce ( in London and not in Paris, as I said yesterday …). In any case- trade hopes are solicting equities & metals higher, bonds lower today, and gold remains largely unchanged. Palladium is continuing it´s bull-run with new highs.

The Chinese government targets 25% of all vehicles sold in 2025 to be electric….sounds difficault to me, and Macquarie analysts predict 13%. But one thing is without question: The political drive for EV´s remains very strong indeed.

Rare Earth producers in China shot higher today, as prices for their products saw substantial price increases.

RIO will spend 1.5 bill US$ to keep Bingham Copper producing for an additional 6 years. They are obviously putting their moeny, where their mouth is with regards to the long term outlook for copper. RIO also halts mining operations, and also work on the 500 Mill US$ capital project, at Richards Bay, the worlds largest producer of TiO2. There has been massive trouble in areas surrounding the project for years, but things got even worse a few days ago, when a worker was shot. Should be very good news for Sheffield ( sorry, but the world is cynical! )- but their share price was down, regardless.

Interesting update from Evolution, showing the very strong seasonality of the gold index in Australia: November has been the weakest month over the years by a long shot ( on average down 6.3% ), while Dec/Jan/Feb are the strongest month ( on average up by 7 / 7.8/ and 6.2%. That is quite remarkable - let´s hope, that it happens this year as well!

Hot Chili - I have not written about them for years, and below the line, the stock has not done all that much…it´s only recovering now to levels last reached in 2016…but the company has made good progress over the years - working on the same project, still, in Chile, Today, tehy announced results from a fantastic, deep hole, of 972m with 0,5% copper and 0,2g gold - including 412m at 0,7% copper and 0,3g gold. Their main project so far has been Productora, about 18km disatnce to the more recent discovery, which contains 1.5 millt of copper and 1 mill oz of gold, but probably needs better copper prices to get the go-ahead. The new find could have betetr grades, and also very large tonnage - so definitely worth keeping an eye on this 60 mill$ company. At the end of this Quarter, they should have 4 mill$ left in cash - so next placement will be coming some time in the 1st Quarter 2020. It could be an interesting one.

West African - released a new presentation with new fotos - stating, that construction is 80% complete, and electrification of the plant has started. Not sure, what they want to do in the next 6 month! The proejct should start pouring gold earlier than in late June, as officially stated. Could it be, that one of the rules of investing in mining stocks will be broken: Never have a geologist running a development??? But to be honest - it should not make a difference to the company´s valuation, whether it starts producing gold in May or in June…But we all know, what markets are like - and especially following some negative experiences recently, where mining companies had severe problems to bring their new developments into proper production. So in light of this, I think it´s smart for the company to err on the conservative side!

Panoramic - the operational review has found no material differences to the final feasibility study for the all-important Savannah North orebody. 5% less ore at 2% less grades is expected, but costs are estimated to be unchanged, using the same parameters as in the feasibility study at the time. The company now expects AISC of 3,75 US$/lb payable nickel - a fraction higher, using today´s parameters. The new MD sees upside from several things, especially using contract work for more efficiency. tenders are out, and will be returned before the end of the year - we could see better productivity . They also stress, that there is very matterial upside frome xploration - from recent , positive drilling results, but also, as large areas have not been drileld ( much cheaper to do it from underground ). The board stresses: take no action in regard to the takeover…pleanty of time left, and I add: Who knows, who else comes out of the bushwork and makes a competing offer!

have a nice evening

Australian Resources Conference attendee companies - Saracen - Metro - a few small & hot names

Good afternoon

Australian Resources Conference, Zurich, 21st of Feb is now nearly complete, with firm acceptances of

Evolution / Strike / Cassini / Graphex / Bellevue / Genex / Metro / Sheffield / Tietto / Liontown - the last 2-3 acceptances are still outstanding, due to those companies either being under takeover, or in the middle of something! Extremely happy with the mix of companies, and I think there will be many promising and appealing names in Zurich! And extremely grateful, that Jake Klein is supporting the smaller guys, once again!

Politics are ruling the markets in the moment..Trump states, that he is in no hurry to do a deal with China…also threatens to impose tariffs on some French products…extending the arm wrestling with Macron. Looks like “intense” discussions are taking place at the NATO-summit in Paris!

Equities are weaker today, as are metals…but as you can imagine, gold reacts positively to the trade woes ( currently up by 18$! )…and bonds are also strong today.

The HUI Index is looking exciting - having tested 36 as measured by the GDXJ 5x, it might now break to the topside, also helped by M&A in the sector.

And even more M&A in the gold sector…Endeavour is bidding for Centamin…EDV might be using the departure of the MD, and the current production problems at Sukaru, for an opportunistic bid - paper only, little premium…at a time, when EDV have outperformed the Index…might be a bit cheaky. Everybody is talking about the bids and pieces falling of the major´s table - this might well filter down…not sure, whether EDV wants all the assets of CEY, if successfull. But in general, nobody disputes the good things flowing from M&A - one of them being asset diversity, and certainly reduced headoffice costs…Also, larger entities are probably finding it easier to finance new developments.

Shaw & Partners taking up coverage of

Metro Mining, one of my favourites. Despite being quite conservative on costs ( I think Metro might do a little better than the brokers estimate of about 40A$/t costs , even on the expanded mine in 2021 and 2022 ) , conservative on currency ( using an A$ of 75ct going forward ) , they value the stock at 30ct, with a price target of 24ct because of some risks associated with the expansion. They also expect a flat bauxite price , which gives very little profit, if any, to Chinese miners in Guinea, the main export market - so this assumption might also turn out to be a little conservative. Shaw sees MMI making 3ct EPS by 2022, and pay a 2ct Div from 2021. I believe, that earnings might well be 20% higher for that year. In any case - I think the stock is as low risk as you can be as a one-mine-stop, generating much better cash flow than nearly all companies in my universe. This is mainly due to their very easy shovel & ship operation.

Saracen - JV-partner Newmont released updated guidance for it´s assets, including the Golden Mile. For Australia´s best known gold mine, tehy expect 500.000 oz more production in 2020, than as used by Saracen for their numbers in the recent aquistion - costs are very similar. Probably the first shot in the arm for SAR following the transaction - more is possible, oif the cutback following the wall slippage in 2018 needs less than 3 years to remedy, as some suspect!

Paringa - extremely heavy turnover over the last few days…20% of the company have been traded ! I am sure, that some inevstors simply had enough - but obviously, some see value. I am extremely disappointed iwth the fundamsntal,a s well as share price performance ove rthe last 2 years…but hesitant to sell, as it smells like corporate action somewhere along the track!

Carawine Resources - the little offshot of Sheffield ( and Sheffield retaining 26% of the company - is having assets in some of the hottest exploration areas in Australia - the Fraser Range ( where Legend Mining is still suspended amid rumours of sensational drilling results ), the Paterson province ( where RIo and Havieron have made substantial discoveries ) , and in Victoria, where Kirkland has sparket something like a new gold rush. RIO as well as Fortescue have jv´d the Paterson assets, each spending up to 6 mill$ in exploration, and in Victoria, CWX have stablished some nice porphyry copper/gold targets, which will be drilled in the first Quarter. The company has enough cash for now, from a placement a few month ago. The company is very small - only 18.5 mill market cap…so not that easy to trade, but could be a hot one.

Apollo Consolidated - reportedt some excellent drilling ersults from it´s Rebecca project, 150 km East of Kalgoorlie. They have had a number of high grade results in the past - this time, tehy reported 40m with 5g gold/t / 51m with 2,9g / 12m with 6,7g / 19m with 5.9g. These results are relatively deep, starting from 165m down to 240m…but still…very promising. I ahve followed the company for a few years…progress has been a bit slow. But as at the 30th of Sept, they had 9 mill A$ in cash, so we can expect more drilling this month from 2 drill rigs. The share price has done pretty little over the last two years - the usual story: placements necessary to finance exploration, and insto´s just waiting for the enxt placement. But this time, having completed a relatively large placement not too long ago ( if I remember correctly at 20ct ) , they should have funds for all of 2020. I do not own any stock, but I probably should! More advanced than Carawine - but not so many irons in the fire! Market cap of AOP is 47 Mill A$.

Musgrave Minerals - and another small one, market cap just under 40 mill. Interesting register: Westgold own 16%, Evolution 4.6% and Independence 2,2%…and EVN are spending 18 mill$ to go to 75% ( of which 4 mill to spend in the first2 years )of the main asset, in the Murchison Region of Western Australia, and close to several, operating mines. This asset will be explored very systematically by EVN. Within the same area, Musgrave retain full ownership of the two, established resources, the main one being Break of Day , which aleady has 200.000 oz of resources at 7g gold/t, plus several nice interesections, since this resource has been calculated. Today, tehse guys announced more drilling, 45m with 11.8g from 144m and then 23m at 16g from 166m. This could be significant especially, as the results seem to link two existing lodes, which would make development as an underground mine more amenable, due to adding resources per vertical m depth. More results will follow in December. I have not met these guys - so cannot judge on management at all. But given EVN´s involvement, I would not think to have a bad surprise here. Without doubt, another one worth following.

Have a nice evening

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General - Liontown

Good afternoon

initially, equities quite strong today…but then Trump hit out with tariffs again, this time against Brazil and Argentina, arguing that they have been “presiding over a massive devaluation of their currencies!! I guess we all know, that none of these shaken countries have done that voluntary…but Trump is looking after his electorate, in this case, US-farmers, and the steel companies. Europe fears, once again, to be the next target, as can be seen in the divergence between US- and European equity prices today. But I am sure, that the market is very open for excuses to take profits at record highs!

PMI´s in China in positive territory, for a change - and also better in Europe, and in positive territory also in the States - but importantly, manufacturing declined.. Construction spending weaker than expected.

The US$ is slightly weaker, as Trump pressures the Fed to cut interest rates, once again.

Little change in base metals or gold today, but bonds are very weak across the board - economy starting to look a bit better? Bonds in Europe probably also weak, as the leadership of coalition partner SPD changed, with a pretty leaft-wing duo taking over, with possible ramifications for Angie´s government. Well let´s hope, that this tariff nonsense, and political turmoil in Germany, does not derail us any further! And who knows - in the end, Trump might get a deal - and even a good deal - with China!

Zijin bids 1,37 bill Can$ for Continental Gold , which developes a gold mine in Columbia…stock started moving strongly 2 trading days ago - interesting!

Codelco - will have to transfer more cash to the Chilean government, in light of the promises made following the recent upheavel in the country. This will put the spending plans of 20 bill US$ for the next few years at risk, as the company is already carrying record amounts of debt currently. Yet again, another positive for copper.

Perenti Global - which is better known under it´s previous name, Ausdrill, has withdrawn from two contracts in Burkina Faso - the one operate by Semafo, called Boungou ( where the terrible incident happened 4 weeks ago , with 39 dead any many wounded ), and another one in the North, operated by Nordgold. Bad for Burkina - but interesting, that they specificially mentioned West African´s new project, and two others, which are loctaed more central and having lesser security concerns.

Liontown - came ut with a strong feasibility study , for their Kathleen Valley liithium project.. But nobody is interested in Lithium these days, even in such a good project. At longterm lithium prices, returns are excellent - but at short term prices, results are only about break even. Not good enough, to get financed! But that has not been expected anyway…the company is targeting to go into production by 2024, when demand for lithium will be much stronger. The company is well cashed up, will continue with a feasibility study and further drilling , with chances to increase reserves by another 50% or so. At the currently planned processing rate of 2 mill t, the existing reserves are already catering for 26 years of mine life - so there is certainly upside to production plans. But for now, it´s smart to drive the feasibility study , but keep development on ice. Kathleen Valley will have it´s day - but we might have to wait a while - unless some corporate has a real long term view! I think within the enxt 12 mont, we will get a better feeling for what´s happening in the EV-market , with multiple large manufacturers getting serious with the launch of their products.

Have a nice evening

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General - Strike - Evolution - Newcrest

Good afternoon

Save the date….21st of February, the Australian Resources Conference, Hotel Baur au Lac, Zurich

economic confidence in Europe a bit stronger than expected…China beefing up infrastructur spending

Holdings of Gold ETFs are rising yet again…Palladium strong , the combined Plat/Pall price in A$ terms trading at a new high at 4030 A$/oz.

US markets are closed today, and I guess anyone sensible will take tomorrow off as well..

Investors are a bit concerned of the Hongkong situation getting in the middle of the trade negotiations…hence some profit taking at record high stock markets. Also slightly weaker base metals - nickel is testing support levels again at 14.000-14.200 US$/t.

Strike Energy - the stock has come under pressure, because of a lack of newsflow over the next few month - but one thing has certainly changed since summer: From a speculative hopeful, Strike has become a strategic asset in Western Australia - or better, their recently discovered West Erregulla gas resource of 1.18 TcF, with further upside of about 270 bcf from the Wagina formation, which has not been included in the above estimate.

The resource has got further upside from more drilling next year, starting mid-year, and certainly from the large acreage position in the Perth basin. Let´s not completely forget about Jaws - while it´s not looking too sexy in the moment, this asset could still be worth anything between say 10 mill and several hundred million ( as at today, it´s probably worth 20-30 mill A$ - so pretty irrelevant to the overall value of the company ). West Erregulla will be the cheapest producer of gas in Western Australia, alongside the neighbouring Waitsia, which is smaller ( 880 bill cbf resource ) , but of similar, excellent quality. Mitsui paid 500 mill in the takeover of AWE for the 50% share of that company in Waitsia, Beach subsequently paid 476 mill for their 50% share in the takeover of Lattice. These two corporate transactions would put a value of 450-600 mill A$ on Strike´s 50% of West Erregulla ( + 30 mill cash in the bank ). If I want to be conservative, I deduct 10% of that valuation, due to Strike having used a company consultant to estimate the resource, I still arrive at a value of 430-580 mill A$ for STX´s share = equivalent to 25-34 ct/share versus todays price of 18ct. This valuation offers upside of between 40- and 90%. Strike have the potential to double this resource or more, from further, planned testing of West Erregulla, as well as from their other acreage in the neighbourhood ( seismic testing is planned for the next few month, which will give us further hints as to the potential ) On top of that, we have Jaws, and the Cooper Basin acreage. Furthermore, Strike have recently completed a oversubscribed placement at 23ct of 30 mill A$ - enough to drill two wells, and potentially also enough to bring stage 1 into production by early 2022…that sounds like a long time away, but in fact, is only just over 2 years from now!

Strike is also governed by a very strong board of directors, managed by the excellent Stuart Nicholls, and helped by some world class consultants.

The market seems to anticipate a paper takeover of Warrego, the JV-partner, which would probably put some short term pressure on the STX share price - but without any doubt, would be positive for the corporate , overall valuation of West Erregulla.

I am brave and confident enough to say, that STX have moved from a speculative play, to a value investment - with extremely little fundamental downside, but several hundred % upside potential. All you need is some patience - but not even that much! And who knows - there are enough cashed-up and financially very capable operators with existing gas assets, and declared interest to add to them, in Western Australia - like Woodside, Beach, Mitsui, Mineral Resources or even Santos. Chairman John Poynton bought some more stock at 18,5ct - you might want to do the same! You will remember my recommendation to take profits in the high twenties - today I recommend you, to buy them back at 18ct!

Evolution - at the AGM, Jake Klein talks in some detail about the aquisition of Red Lake…I have nothing to add, but repeat my view: He is not betting the company and is taking a very limited risk, to add a project with potential to become a Tier 1 asset again…Interesting: The company has a new board member, the ex-CFO of Goldcorp, and a Canadian. It´s the first North American on the board, with deep connections in that capital market. I think that´s yet another smart move by the company.

Newcrest - Macquarie has published some agressive and interesting research today , putting into hard facts, what I have been saying for a long time: There is no reason for the premium rating of Newcrest, and hence, no reason to own it! Macquarie believe, that Newcrest could have to invest 10 bill $ over the next 10 years into it´s existing - and new mines. Debt rising, free cash flow falling like a stone, even production falling, at least from existing mines ( and quite considerably so! ). I agree - larger funds should not own any Newcrest, but switch into Evolution and Saracen! Even Newmont looks cheaper!

Have a nice evening

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General - Evolution - Peak Resources

Good afternoon

US imports fell last month, as the housing market and consumer confidence continue to look ok

No significant action today in equities, metals or gold…bonds stronger. Markets expect the trade deal….

The grandmaster of promotion, Mr.Friedland, believes that Congo is a better country to invest in than Chile…I think he might be talking his book here…Congo is still one of the worst, but Chile and basically of of South America are fast deteriorating!

Gold ETF´s had their largest inflow in a month yesterday…

13 French soldiers got killed in a collusion of two helicopters in Eastern Mali, not far from Niger, while battling. Very sad…this is a ugly, little war down there!

The day of big M&A in broking, pharma, luxury goods - but also in the gold space!Kirkland making an all-paper bid for Detour Gold in Canada, and Evolution buying the Red Lake mining complex from Newmont.

Kirkland´s transaction is not liked by the market and is seen by some as reducing the asset quality ( I know nothing about Detour myself! ), but increasing the number of mines being operated to three ( which I think is a positive generally, especially given their dependence on Fosterville.

Evolution - is more complicated! Red Lake is a pretty complex asset, consisting of 3 mines and two plants. The area has produced a staggering 28 mill oz since the second world war, and had it greatest days a few years ago, when Goldcorp mined out a 60g-ore body! As recently as 2018, the mine produced 270.000 oz at about 1000 US$ AISC - this year, production is falling to 150-160.000 oz at 1600 US$ AISC. Evolution sees as a big attraction, that the mine has been wrongly managed, starting a few years ago ( well EVN say that very much more politely than I can do ), and subsequently, suffered from very low investment. Finally, the mine became a small asset within gigantic Newmont. EVN have bought the asset for 375 mill US$ plus another potential 100 mill US, in case of pre-defined exploration success. The company has also earmarked 100 mill US$ in capex ( mainly underground development )+ 50 Mill US$ in exploration over the next 3 years, with a target to bring production back to above 200.000 oz p.a. at around 1000 US$ AISC. I guess at this stage, both numbers have to be an indication - I am sure, as things move along, capex/development might increase a little, and exploration could as well - but only in the case of success! EVN see a chance to substantially increase productivity, and perhaps even more important, to define a new high grade resource. Currently, the mine has a stated reserve of 2.1 mill oz at 7g gold, and a massive resource of 7 mill oz at 11.2g - but this does not account for recent depletion, and EVN will also apply more conservative parameters . They expect “their” reserve to be up to 40% lower, once calculated.

Evolution have bought a potential, very long mine life asset, which could well be one of it´s top 3 assets alongside Cowal and Ernest Henry. But until then, there is some work to do, and money to be spent! I think the target of 3 years they have given themselves is a conservative one - I am sure, that Jake does expect to be there earlier. But the example of Northern Star´s Pogo shows, that these underground turnarounds do need some time - and I am certain, that EVN will want to make sure, that they do not raise expectations too high. IF they get to their target - and I guess internal hopes are not for just 200.000 oz p.a., but potentially quite a bit higher - this is a good aquisition, without betting the house on it! EVN can easily debt finace this aqusition, and will leave dividend policy unchanged. I do like the deal, as it gives EVN the chance to significantly lengthen the average mine life, once again increase the asset quality, and gives them the first, measured transaction in North America. And history also tells us, that you buy relatively safe from the majors - a lot of fat there, usually, and a re-motivated work force can do wonders! But I think we will need to be patient to find out, whether this deal is as good as it sounds - and without being a mining engineer, I would not at all be surprised, if EVN would have to spend more than 100 mill US$ on this asset! For gold bulls, I think it´s a no-brainer, as Evolution has bought many many ounces at a very reasonable price! And for geologists, the deal sounds like paradise, to add success and ounces over the next few years.

And let´s be frank: We all like Jake´s mantra of “being a profitable gold miner throughout the cycle” - but a bit of growth and potential add some spice to my favourite gold miner!

Peak Resources - I did not mention this one for quite some time….to remind you: Rare Earth in Tanzania, to be processed in England…I guess it´s not a surprise, given recent talk about the dependance of the US on China for basically all of their Rare Eart supply, that the company has received “a letter of interest” from the Overseas Private Investment Corp, a US government agency, to consider financing the project, subject to all sort of things. Early days - but certainly a big step forward . The company saw the highes turnover ona single day ever ( I believe ), about 60 mill shares changed hands. The stock could not hold on to all gains, but closed 11% higher. No doubt, that there are a lot of stale bulls in this stock! I am hesitant to recommend the stock, given the weak market in most rare earth elements…but there is little doubt, that this market could explode at any time and it would make a lot of sense for the US, to lessen the Chinese influence here.

Have a nice evening!

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