Good afternoon
while the FOMC-Meeting is getting close, investors in the mining space are asking, what a interest rate hike would do for gold! That´s very understandable, as gold does not get you any interest, and generally, rising opportunity costs will make gold less attractive. I fear that´s true - for as long as interest rates are not going up because of inflationary expectations, which does not seem to be the case - at least not for now.
I believe, that interest rates will be going a little higher, as the effects of monetary policily lately have been very limited. Hence, Central Banks will try to slowly reduce the worst excesses of this stimulus. What is important, though, is, that I also believe, that the world economy would spiral down again, in case we would see significant rate rises around the world.
The question remains, whether and probably rather by how much, the gold price would be affected by a very gradual tightening of monetary policy. As the world is probably more f---ed up than ever, I think the downside in gold would be fairly limited - probably / hopefully confined to a 50$-drop or something like that. Given the vast improvement of mining companies on the cost side, I think further downside would not be greater than 10% or so in established gold miners.
Today we are seeing in the States, that the economy is not booming at all - Housing Starts as well as Building Permits have been disappointing.
Macquarie have come through with some major upgrades for coal and manganese today. While staying way below spot prices, which have rocketed recently, this has led to major profit upgrades for the large miners. Coal, iron ore and the share prices of respective producers have surprised EVERY single analyst this year and show you, that you have to be invested, BEFORE the action starts. ALTERNATIVELY, you can buy the small developers, which usually start to perform a bit later - in this case, companies like Prairie Mining and Paringa in coal. But other commodities will have their day in the sun - I am thinking of uranium ( Berkeley! ), or Rare Earth ( Peak Resources ). If you don´t buy these things, when nobody wants them, you will pay 20-30-40-50% more, once the action has started. In the meantime, you might have to wear some pain, though!!
The nickel price is gearing up for the outcome of the mining audit in the Phillippines, which should be announced later this week, probably on Thursday. I guess in the medium term, much will depend on the measures, which nickel ore producers have to take, to re-start production - and especially, by how much those measures would increase the cost base of these companies. Ultimately, and regardless of how many more mines will be closed, I think production costs in the Phillippnes will go up, taking the costs of nickel production in China higher as well. And for my favourite puppy, Panoramic, that could be major good news...IF the price of nickel should increase to 15-16.000A$/t = 12.000 US$, this stock would move like a rocket....
Breaker Resources - announced some more , very positive drilling results today. They are gradually closing the gap between their two, recent discoveries - if they can continue to do so, this could be a large gold resource! The stock moved again on large turnover of 3 Mill shares. At this stage, there is no limit to the resource...many reasons to believe, that this could be a new Gold Road ore something like it, with a market cap 10x larger thsn BRB....but as always, the prove is in the pudding! Much more money, drilling success, and even more luck are still needed!
Evolution - the capital raising has finally finished today with the placement of the 18 mill shares, which were not taken up as part of the retail tranche. It was completed at 2.35 A$. All technical hurdles are now behind the share price....the most importaant one, though, is still there: the godl price needs to hold here - if not, the 9 month up-trend would be broken. In that case, there would certainly be some downside risk for our gold producers. Van Eck have increased basically all the holdings of Australian producers within the GDXJ...unfortunately, EVN is now part of the large cap GDX, which has not been reweighted as yet.
Kentor - announced some very nice drilling results yesterday, as had been awaited for some time. 9.4m with 11.53% copper, 60g silver and 0.9g gold / 15m with 7,11% copper, 29g silver and 0.9% gold are certainly fantastic. The depth of approx 550m is not so good ( even though they have had success previously on the way down there ). At this stage, too hard for an outsider to quantify this - no idea about the possible t contained in this thing - and that could be the negative. I have used the recent strength to exit the stock....after what I believe have been more than 10 years as a shareholder, at varying weightings. A bit said, really - but at 44 mill$ and without an MD, perhaps fully valued!
Venturex Resources - Following the recent restructuring, and a discounted capital raising, they seem to find their feet again! They have started greenfield-esxploration again, with 4.5 mill$ cash in the bank and some initial success. Their total resource now stands at 900.000t of zinc, and 200.000t of copper, but over various orebodies some distance apart in Western Australia. So in my opinion, they will have to concentrate on finding just a little more at the right grade, to get the project over the line. This stock for example has it´s projects a little further advanced than Kentor, with a good chance to enter the development phase within the next 12 month - while the company is 10 mill$ cheaper and has enough cash for the next 12 month - contrary to Kentor, which will have to raise money this year ( about 1.3 Mill$ left at the end of this Quarter ).
Berkeley - announced the first sniff of an off-take agreement today - a European metal trader has signed a letter of intend to buy 200.000lb p.a. for the first 5 years at above 41 US$/lb uranium off them. That´s only a small quantity - about 5% of the first 5 years production - but more is to follow, and it helps setting a price, as well as it´s increasing confidence in the longterm contract market for uranium, which is only trading at 25 US$/lb spot. If the company can secure more size at that price, financing of the mine should not be such a hard task. Some North American brokers value Berkeley at around 2.30 A$ - I can see , why!
Genex Power - as expected, the Government granted 8.8 Mill$ to their solar project in Queensland. Even more important, the Queensland government is giving them a guarantee, to pay them the difference between electricity prices received and some publicly undisclosed value of between 80- and 90 A$ per Kwh ( which I believe will be close to 90$ ), payable at the end of each month. In other words, by the end of each month, and IF the price received has been lower than that price, the State of Queensland ( AA-rated ) will make up for the difference. That is a fantastic deal and in my opinion, should give the company the ability to get close to 90% debt funding at very low yield, as it´s operating profits are underwritten by a AA-rated body. I guess, that GNX will now need approx 10 mill$ in equity only, to finance this 50 MW solar power station! The stock has moved on a little from around 15ct to around 19ct - but at 33 Mill$, and hopefully 10-12 mill$ EBITDA p.a., I think the market cap is barely paying for Stage 1 of this solar project - not to talk about any valuation for the 250 MW hydro pump project to follow. feasibility study for the latter should be out by the end of this year. I have continued to build on my position in this stock - I think it´s very very cheap and in fact, risk vs return, has never been cheaper than today. I hope, that some analyst will put the effort in and publish some numbers soon!
WS
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