Good afternoon
Manufacturing in Europe is very strong as per the PMI today, Consumer Confidence strong.
Thanks Giving day in the US today.
Base metals and gold and basically unchanged today, as are equities in Europe.
VW making a new attempt for somebody ( stupid ) to give them a 10-year agreement for cobal supply....
ANZ analysts calling for Glencore to re-open at least some of the moothballed zinc mines, to avoid a price spike, which would potentially be demand-destructing. They believe, that the market would digest this without any subsequent weakness in prices.
I want to spend some time today on two outstanding companies in their field, Evolution and Mineral Resources, comparing them with the perceived leaders in their respective sectors.
Evolution - had their AGM today, and confirmed , once again, the outstanding performance of it´s operations:
Oct 2017 July-Oct 2017
Gold produced 64.373 285.345
AISC A$ 739 A$/oz 772 A$/Oz
Evolutions mines generated 67 Mill A$ operating cash flow from the production of 64.000 oz for the month of October alone! Just compare that with the large US-producers...tehy will be very jeallous!
Net debt reduced to a paltry 282 Mill A$...
Evolution produces 760.000 oz at 800 A$ AISC/oz, for an Enterprise Value 4.6 bill A$ ( and looking at the above, probably more oz for lower AISC! )
Newcrest produces 2.6 mill oz in a normal year ( this year is worse! ) at 1020 A$ AISC/oz, for an Enterprise Value of 19.2 bill A$.
EVN trade at about 6x EBITDA / EV; NCM are trading at 10x this year and 8.2x next year, according to Bloomberg consensus, I can see absolutely no reason for paying a premium for NCM, which just had to close part of it´s largest mine due to a small earth quake, and has one mine each in Papua Neuguinea and Indonesia.....Over the last few years, EVN have outperformed NCM by more than 60% - I think another 30% will be coming over the next few years!
As expected, exploration is coming into the focus now...exploration budget of 50 mill$ will be increased by 5-10 mill4 this year to follow up on some potentially exciting results at Cowal and Cracow. The company states as one of their main targets, to discover a significant ore body themselves. I very much agree - exploration success is the only important measure of success for EVN, on which the company has not shown market-leading excellence so far!
And last but not least: Their long standing COO, Mark Le Messurier, who obviously has done an excellent job, will retire at the end of the year. The previous COO of OZ Minerals, Bob Fulker, will start in February. OZL have been a very well managed company over the last few years, and while I do not know him, he should be good!
Mineral Resources - this is another very well amanged company. The company started as a mining services company, and is now the largest contract crusher company in the world - operating crushers with 150 millt capacity p.a., for the Australian iron ore mining industry. This business generates in the order of 200 mill A$ EBITDA p.a.. The company moved into iron ore mining themselves a few years ago, and again, have been very succesfull there. Last year, the company produced 12 millt of iron ore, generating great cash at great iron ore prices. They have the same problem as Fortescue - their iron ore is lower grade and is attracting a large discount. Macquarie analysts therefore do not expect iron ore to generate anything meaningful going forward - it´s all a question of iron ore pricing. Largely unnoticed by world mining investors, MIN is becoming the largest producer of lithium worldwide, though! And that division is generating a fortune for them.... They produce a large amount of direct shipping or ( digging the ore out and shipping it to Asia, as it is ), an increasing amount of spodumene ( a 6% lithium concentrate ), and in July 2018 they start construction of a 50Ktpa lithium carbonate plant ( which is the battery-ready metal ). Have a look at the presentation from yesterday´s AGM on their webpage - very impressive. This company is trading at a div-yield of 3.9% for the current year, and 5.9% for next year, and at 6.3 x and 4.7x EV/EBITDA for these years. Perhaps not crazily cheap, especially, as the outlook for longer term pricing of lithium in my opinion is doubtful. But it´s extraordinary cheap, if you compare it to say SQM, one of the world market leaders, a Chilean company. They generate 750 mill US$ in EBITDA in that divison - about 70% of their total - so I would see them largely as a lithium company. J.P Morgan is valuing their lithium divison at 16x EBITDA, to arrive at a total valuation, which is in line with the current share price. I think there is every reason, why MIN should be significantly re-rated!!! Just wait for the Americans and general funds to disover it...
Contact me, if you want research.
Kingsgate - interesting outcome of the AGM today....the old management team got all their proposals hrough easily. AIM_listed Metal Taiger quite obviously, and even more expectedly, voted differently - but just about nobody else, and nobody of any signifiance. The must feel pretty bad today!!!
Have a nice evening
WS