Good morning
back in town...! I have to say, that I did not miss much in August...markets have been difficult, as politics overshadow a strong economy. Metals have not had a good time...Trump´s tariff-policy has not done any good to them, and risk-appetite in the mining sector is very limited. Even gold disappointed big time in an enviroment, which should have been good for it...but it looks like the relatively strong US$ and rising interest rates are having a stronger effect than erratic politics.
In Australia, the demise of Mr.Turnbull has had a negative impact on the A$, which has been good for the miners. Except for this , I think Australian investors have been frustrated for so long with their politicians, that the impact of the recent chaos has been pretty limited. One area of politics is continuing to make headlines, though - that is energy/power. Lots of uncertainty here, how the new Prime Minister and his team are going to manage this issue - and it will affect miners as well as generators and consumers.
Economic Confidence in Europe is still positive, but continous to slide. In the US, Personal Income gains only 0,3% vs expected 0,4%, while inflation at 2.3% is at a 6-year high. Inerest rates should continue to go gradually higher, supporting the US$.
Sheffield Resources - have received a favourable Native Title ruling. There is a 28-day appeal period now, but given thet SFX had previously reached also an in-principle agreement in private negotiations, the chances for an appeal appear pretty low. The above has been the main issue with developing the Thunderbird Mine. Prices for mineral sands are doing extremely well, and look strong into the future as well, as some production will peter out due to diminishing reserves. Sheffield have what appears an outstanding, long-life and good quality project in a top jurisdiction, being Western Australia. Financing is very advanced....and I believe, that the company will either be taken out, or sell down part of the project to a large industry participant - both would make another equity raising unnecessary. The stock has de-risked further , and teh share price has risen - but I think the story is far from over, given 2$-valuations by some analysts.
Prairie Mining - Polish coking coal miner JSW updated the market the other day on various things, as well as on ongoing negotiations with Prairie Mining re their two coal developments in Poland. They commented, that both projects do satisfy JSW´s coal quality requirements, and that further steps would be taken by mid-September. This excited the market, especially in Poland...JSW had previously mentioned some doubt as to the quality of the Jan Karski coal. On Monday, the stock jumped to the equivalent of more than 70ct in Polish trading, on 1.4 mill shares turnover, the highest turnover since early April. As you will remember, the NPV of each of the projects exceeds the market value of PDZ by multiples - but both mines are subject to mining license issues.
Northern Star - is the first of the "fabulous 4" making a move on M&A outside of Australia. They bought the Pogo Gold Mine in Alaska from Sumitomo Metal Mining for 260 Mill US$. Pogo is producing around 300.000 oz at just under 900 US$ AISC, with reserves of only 760.000 oz, but another 3.3 mill oz in resources. Given NST´s history of managing old mines extremely well, this could be a great aquisition...but I think too early to tell. Alaska is not Australia, and this is the first move of NST outside of Australia. The stock was suspended today as they were doing a placement to raise 175 Mill A$ to partially finance the aquisition.
Gascoyne - raised 19 Mill A$ plus potentially 5 mill$ in SPP at 30ct - VERY disappointing! The company cites as main reason, that the plant was starting comissioning 6 weeks earlier than planned, and that mining could not be adjusted quickly enough. Hence, more low-grade ore had to be processed. I assume, that production of 4.800oz in July, from ore grading 0,83g/t vs a medium term head grade of 1.3g, did not produce any free cash as yet...But I also believe, that raising 24 mill$ is the typical over-the-top raising, making it safer than safe....A HK-based investor took 10 mill$ of the placement. 177 mill A$ enterprise value as at today for the company will hopefully prove a real bargain...but the market is understandably cautious now, as this is the second surprise-placement in the stock. One has to question, whether management has performed well? I will work on that question...
Strike Energy - are making good progress with Jaws , their most important well ever. The pumps are working extremely well - pumping capacity is not a constraining factor, as had been the case with earlier wells.The productivity continues to build, and I think the day of gas flowing should be with us over the next few weeks. The company is managing the wells very cautiously, which is exactly the way they should be doing it. Just after I went on holidays, STX did a quick-and-dirty placement to raise 3 mill$, which answered all questions the ASX had with regards to working capital, which appeared a little short. This little placement will finance them until year end only - but that is more than enough to finish JAWS as a producer - well, I bloody hope so, as anything else would be very negative! If things go as planned, the STX share price should be substantially higher by year end, and major East Coast producers will all have an eye on this little company, which has a major gas resource. As has been announced, STX will aslo have to put some money into their Western Australian asset in the first Quarter, drilling a first well. STX management must be very sure about a transaction with an incoming partner for West Erregulla - otherwise, they would have raised more money. I assume, that we will get more news here soon as well.
Evolution - along with other gold stocks in Australia, my favourite gold miner came under pressure as well. While the yearly result has been a stand-out, guidance for the current financial year has been more cautios. The extraordinary low cash costs of 89 A$/oz AISC in the last financial year cannot be repeated, and the company is expecting the worst Quarter in terms of AISC to be the current Quarter, making the market a little nervous. Overall, free cash flow in the current year is expected to be the same as last year - about 450 mill A$ - as capex will be somewhat lower. The stock had been bought up to heavily by generalist funds, which kind of had to invest into the strong outperformer. And I guess Sawiri killed off any pent-up demand with his last placement in late July. But with the Aussi gold price still trading at around 1650A$/oz, 2.66 A$ and 10x free cash generation is definitely worth looking at again. Stocks tened to overshoot - so as EVN overshot to the top earlier this year, tehy might well do the same on the downside...I am staying tuned and am planning to re-enter EVN at the 2.50 A$-level.
Perseus - have provided a new LOM-plan for Edikan, which is calling for production of 1.1 mill oz over 6years at 950 US$AISC, which looks a little ambitious.(?) Exploration success at Yaoure has been good, while I think the company has not shown as yet, that the 5-year life at Sissingue can be increased. There have been some positive intersections, but in my ( amateurish ) opinion, they are not good enough as yet to give additional reserves at reasonable grades. Yaoure will announce a new reserve update in early October, which could be positive. Overall, I think slightly disappointing. Edikan is just a difficult asset, highly sensitive to the gold price - and that went into the wrong direction recently. With gold at 1300/1350 US$, I felt much more positive on PRU than with gold at 1200! I doubt, whether Yaoure can be developed without raising any capital, or selling down at the asset level, or doing a streaming deal....all would be potentially negative. I can only guess - but looking at the overall state of the gold market ( physical as well as stocks ), financiers are probably pretty luke warm these days. Unless you see upside in the gold price ( which got to be doubtful, given the direction of interest rates in the States ) over the next few month, there is not much incentive to buy PRU in the moment, unfortunately.
Have a nice evening
WS