Good afternoon
while cash levels of investors are close to record highs as well as short positions in equities in the States, the earnings season is seen as all-important. The US-guys have done the usual thing - massaged expectations down, to surprise on the upside! That´s at least, what investors are hoping for. Buy-backs have provided big support for the market - as obviously have very low interest rates. But I very much doubt, whether the market can just continue with it´s record breaking run from 1820 in mid Feb in the S&P 500 to 2082 as of the close of yesterday - a return of nearly 15%!
The US economy is stottering in the moment, and we are anxiously expecting Chinese growth numbers for the first Quarter, even though they are probably not all that reliable! But it seems, as China is bubbling along quite nicely at 6.6-7%, which is is a massive number still for an economy, which has grown it´s base by a huge amount over the last 10-20 years.
The CPI in the States has grown by 0.1% in March, and 2.2% YoY ex Food and Energy - both a touch less than expected. Initial jobless claims were lower than expected, giving somewhat different signals than yesterday´s much weaker Retail Sales.
The A$ continues to be strong, above 77ct just now, as the Reserve Bank of Australia is not expected to reduce interest rates any time soon, which are among the highest in the developed world, and as investors believe, that most commodities have seen the lows.
Oil is holding up today at high levels, as markets are awaiting the Doha - meeting on the weekend, for which I do not have any high expectations - too large are political differences of Saudi and Iran, in my opinion.
Gold is not being helped by the low CPI number - it tried to go higher ealier on, but is now back to 1235 US$/oz. Gold stocks are holding up very well, telling me, that there is not much downside in physical gold....
As expected, Peabody is under Chapter 11. The world´s largest coal producer, with total debt of more than 6 bn US$ - that will hurt a few banks!
Strike Energy - my favourite unconventional gas stock in Australia ( and in fact, one of my largest positions overall ! ) had it´s Quarterly out today. Unfortunately, we will have to wait a little longer for commercial flows from their vast resource - but I think that had been expected, and the market is pretty well informed, as they placed additional 6.7 mill$ in fresh equity the other day - now holding just under 11 mill$ cash in tha bank, more than I thought a few days ago. The company has modified pumps etc of existing 3 wells, which are already in re-comissioning phase, or will be by the weekend. The company is very hopeful of having new data within 3 weeks or so, which will hopefully prove commerciality. If not, we will have to wait for Klebb No4, which will have a completely fresh design, and which is expected to flow well - if not in an optimal way, at least close to it. We must not forget, that unconventional gas fields in the States still have seen vast improvements in delivery very recently, following years of production - it just takes many wells to figure out optimal development techniques for these fields. While STX´s dvelopment has taken much longer than expected, we must not forget this - with just 4 wells and very limited finances these guys will ( hopefully ) deliver commerciality of a completely new and massive gas field in a country, which is not used to fracking-technology!
Just to remind you of the potential size of this thing: the first stage of the project is planned to deliver the equivalent of 35% of New South Wales´gas needs for 20 years from 2017/2018, while stage 2 will potentially deliver 5x that amount of gas! A big price for a small company at the right place and time, managed and derisked in a conservative manner!
Kingsgate - delivered an updated PFS for their silver project in Chile. At first glance, it looks halfway reasonable at an IRR of 25% and initial capital of 200 mill US$ for the production of I think 135.000 oz of gold equivalent for the first few years - but the mine is going to produce a silver/gold mix of 70% revenue from silver/ 30% from gold. Still no problem per se - BUT the company has used a silver price of 19 US$, which is 20% higher than today, and a gold price of 1200 US$. I do understand, that they want to keep on progressing this project, containing 1.2 milloz of goldequiv reserves - but as at today, it´s not worth a lot in my opinion.
Reading my comments on Kingsgate over the last 2 years or so, you must wonder, what happened with my relationship to these guys - but I promise, it´s nothing personal at all, but a continuing flow of bad or disappointing news over a very long time !!
Northern Star - delivered an excellent production update for last Quarter. The company is on track to produce gold at the upper end of guidance for this year, and at the lower end of cost guidance. They have a very sound balance sheet, and recently had excellent exploration results from two mines as well - and I still believe, that it´s all priced in!
Beadell - released a new reserve/resources statement today. Total reserves are now 1.5 mill ounces at 1.59g/t, including 345.000 oz from underground at 3.6g/t. Production for the year has been 136.000oz in 2015, so reserves have been growing by just under 200.000 oz, all from underground. Not a bad effort! The only worry is, that the oxide resource is now down to just under 2 years mine life. The fresh ore will require amendments to the plant, needing some 30-35 mill US$ in capex ( ????? pure guess) . The Quarterly should be out shortly, followed by a new mine plan - both should add some light to these questions. Overall, the company has had a good run, and is not overly expensive - but it joined the ranks of not-cheap-anymore, Australian gold producers at the current gold price and hence, I have reduced a few early this week ( don´t forget, that the company placed 50 mill$ at 19ct recently! ).
FAR Ltd- the little Australian oil-explorer is one of the most succesfull ones in recent times, without any doubt - yet they are a good example, why it´s hard to make money sometimes even with successfull companies! The stock had a year high of 17ct even after oil started falling in 2014, a high of 11ct in 2013, and a high of 12ct this year - all based on very positive results from their JV in Senegal with Conoco and Cairn Energy. But oil exploration offshore is a a very expensive game, if you have no cash flow from existing production! The JV has delivered what is probably the world´s best new oil find in 2015, discovering more than 1 bill barrel of oil offshore Senegal - but every time this discovery is getting bigger, little FAR have to come to the market and raise another 50 mill$ to pay for their share of the next 2-3 wells, as happening in the moment. I think this is the 4th placement in 2 years or so...a little frustrating, even though I have tried to trade the company. I hope, that the current placement at I think 8.5ct will be the last one, until FAR will be taken over by one of the big boys!
Have a nice evening
WS
Wilhelm Schröder
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