Good afternoon
the massive switch out of bonds into equities + commodities continues today, following on from some wild trading on Friday! Same for the US$...it looks like a test of previous highs against the Euro at about 1.05 US$/Euro will be on shortly! One thing seems to be for sure - Trump is delivering a competitive advantage to Europe...via a strong currency! And IF he really imposes the 45% of tariffs on Chinese goods, remains to be seen...If he does so, you will see China competing with the US on who has the biggest infrastructure program!!
In the meantime, IP in China + 6,1% and Fixed Asset Investment up by 8.3% - both with stable growth rates - while retail sales were growing a little less than expected - but still by 10%.
The asset-re-allocation mentioend above could go a lot further - don´t forget,.that there is a lot of cash around, that investors have been very long bonds, and that a 30-year trend is most probably changing here...that could lead to wild moves. And the same for metals...few people own them - but now, many will feel the need to own at least some! But while I think that we are only in the early stages of a 2-3 year move, we will need some substance added to the demand picture....volatility will stay with us!! For now, Chinese demand is still rising, and the world is still growing....The question go to be at some stage: How high can interest rates rise, before some harm is being inflicted on the patchy recovery??
And finally, gold. .obviously, this is just an interest rate play in the moment - and I guess that´s the way major hedgefunds are playing it. But you and me know, that interest rates won´t be the only factor driving the gold price. In my opinion, there are multiple, strong reasons to own gold - probably more so than for a long time. But the sheer weight of this Interest rate/ gold trade does put immens pressure on gold in the short term...I believe, that this will shortly change...it all depends on, just how much further the current re-weighting in markets can continue. We will carefully watch...
For now, irone ore as a very large commodity - seaborn trade of about 64 bill US$ at todays price just under 80 US$/t - is powering ahead...as are the major miners. following some profit taking ahead of the weekend on Friday.
Macquarie-analysts increase their copper price forecast by 10-15% for the next few years...basically, 2.35 US$ for 2017/18/19. I think they might be a little behind the curve here! Remember 2003-2006? All these analysts consistently upgraded, ALWAYS behind the curve....once that changed, the bull market was over - but we only realized that later....We are having 2003 today, in terms of the metal-cycle....!!!! By the way, these relatively small upgrades lead to EPS-inreases of 50-80% for pure copper producers OZL and SFR!!!
St Barbara - have decided to keep the Simberi Mine, which produces 100.000 oz p.a., but will have to move to a different processiong route in the medium term, to enable production from sulphide ore. The fact, that a) they have out it on the market in the first place and b) have not managed to get a sufficient price for it, is not very inspiring! And giving up to 75% of exploration rights on the neighbouring islands to Newcrest, not either! But then, I don´t think anybody had valued Simberi at more than 6-7% of assets...Like so many other´s, SBM have fallen heavily over the last few month - perhaps a bit more than others, which generally are down by 30% at the quality end of the market. Most of the Australian producers are good value now - provided the gold price does not fall any further! I think the entire sector is relatively good value at current levels - but for SBM, I am not seeing a reason for outperformance.
Northern Star - Their 60 mill$ exploration budget continues to deliver - but it has to, to justify it´s relative rating, and in light of their mine life. This time, they reported excellent high grade results from a property called Paradigm, close to Kalgoorlie, where they have been the vicinity of an old open pit. A week ago, NST had announced an upgrade to the Jundee plant, increasing production by 15% in the year 2017/18. This decision had also been taken based on good exploration results previously. One has to applaude Bill beamont: He bought undervalued assets early on, then cut costs dramatically - and now he is delivering on the best growth option: exploration! NST and EVN are the two, outstanding Australian growth stories - but I still see EVN as being cheaper, due to the long term nature of some of it´s mines.
Graphex - one of the more hopeful Australian developers of a graphite asset, and the only one, I own, announced the receipt of a mining license from the Tanzanian government. This is one of the main requirements for the offtake- and financing agreement, currently in negotiation with China National Building, the second largest user of Graphite in China.
Cardinal Resources - the West African developer came out with an update to it´s metallurgical problems. In short, they say, that they have several options to improve recovery, including floating, which would produce a high grade concentrate, (which could be further treated in China ). They are also drilling with 4 drill drigs, with a realistic target to increase the resource quite substantially past the current 4 mill oz. As I said earlier - I think CDV are a good speculation, expecting further refinement of the possible treatment route. But with gold stocks generally relatively cheap again, one might not have to take the risk here. I have bought a small position in the stock.
Have a nice evening
WS
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