Good afternoon
Housing starts in the US are looking strong…But previously positive equity markets moved into negative territory, when some reports from US-retailers raised eyebrows and created some doubt as to the ehalth of retail demand.
One big story intensified over the last few weeks: The world is burning left right & center! Iran, Iraq, Hongkong, South Africajust about all of South America - just to mention the most obvious places. For a change, this is not about war between countries or religions - this is about social unrest, unequality, and in the case of Hongkong, freedom. For us as resources investors, South America got to be a focal point. Not only are many of the stocks we are following somehow active their - these countries are at the center of growth in production of copper, zinc, lithium, and security of supply is an issue here, as well as possible bottlenecks of financing growth in these countries. I think and hope, that once again, Australian projects will be valued at a premium - or at least should be! One example is good old Panoramic, about whom I wrote yesterday….but there are others, for example:
Cassini Resources - we had the company at our resources conference in Feb, and we will have them again in Feb 2020. The story has been very boring this year…Just to remind you: CZI are JV partner with OZ Minerals in the West Musgrave Project in Central Australia, containing 238 Mt of 0,35% Ni and 0,38% copper, plus 156 mt of 0,6% copper. OZ Minerals is paying everything until a decision to mine,expected in mid 2021. The money already spent is subtantial - I believe North of 50 MillA$. OZL had planned to finish a very detailed pre-feasibility study in June/July this year, but several changes to the project led to an extension. The pre-fes should now be out in January. Contrary to what you would expect, the work has been extended NOT because the project look weak, but to improve the project. The WMP is believed to produce 7-8.000t of Nickel, and 10-12.000 t of copper ( that´s for the 30% of CZI ). Weare talking a big development here - probably 850 mill A$ in pre-production spending… the mine life should be 15years+, and while the size of production ( again CZI´s 30% only ) is comparable to PAN´s production, the market cap of CZI is only 35 Mill A$. The beauty is, that they have OZL as a JV-partner…with a very strong balance sheet , and 500-600 mill A$ EBITDA p.a..The 2017 scoping study estmated free cash flow of 150-200 mill A$ p.a. for 100% of the proejct. OZL does need this project for further growth, has a very strong technical team, and excellent management. Their problem, though: The fact, that they have a junior JV-partner, which somehow has to come up with roughly 250 mill A$ or even a little more to carry their share of capex. A few years ago, this would have been not unusual - but these days, very hard to find 100 mill A$ ( that´s the rough estimate for required equity ) , unless you want to end up in the arms of a “cozy” PE-firm. The easiest way forward for OZL would be to make a bid for Cassini at say 15ct - and I think in this market, that might even be a chance. But the NPV of the proejct will be much higher, and OZL have made clear, that they want to be seen as a “good” JV-partner, to somebody who becomes hostile. So for them, the only way out is to make a friendly takeover , buy the remaining 30% of the project at a fair price, or help CZI to finance their part - that is something OZL would be easily capable of.
Beside of strong fundamentals and a strong MD, this situation is waht I like most about CZI. I am not a shareholder currently, but one, day I will be! Between now and say January there should be ample time for everybody to build a small position here. Don´t wait for a placement - the company has 8 mill$ in cash and is spending very little! The only negative: You might have to have a long term perspective! Production will not happen before 2023! But in my opinion, there is nothing wrong to sit on a free option for copper and nickel, and probably make 100- or 200% in a few years.
Sheffield - again. a big disappointment for all of us! Great project, worldclass size, great location, all approvals in place, debt-.side organized , in a desired commodity with short supply comig soon, very long mine-life - but not getting anywhere, as the company will have to find 140 mill A$ or so in equity to close the financing! SFX have signed off-take agreements for just about all their product, which is important: sometimes not so easy for small companies to market specialities, in this case, mainly zircon. The company had ordered UBS earlier this year, to find a partner for the development of the project. As far as I know, the data room has been closed, and the official company plan was to find a partner this year. One of the problems associated with this process is, that it makes it very hard for the company to market the company - they are always behind chinese walls and cannot really talk. That´s still the problem! There is an interesting, fresh presentation on their webpage - all I can say is, that the proejct stacks up, has an NPV of nearly 1 bill A$, and I still believe it to be highly attractive! The languihsing share price , following what in hindsight has been overpromotion ( also probably from my side! ), has created an atmosphere of disbelief and boredom surrounding the company. I am still of the opinion, that one day, we will make up, and we have a deal! The stock should definitely be accumulated,a nd while the high flying expectations of 1.50 or 2$ vaulation will not be erached for years, I think there is considerable upside to teh current 34ct over the next few month.
Bellevue Gold - the company has reported more good drilling results today - more of teh same - even though I think they might just pointing to grades a little below the current resource grade. But resource calculations are a science - this is juts a gut feeling. The company has hired two additional rigs now - 8 drill rigs working, on infill rilling as well as exploration drilling. I strongly believe in their project, and there are many potential aquirers surrounding the project ( 11g dirt can easily be transported! ), especially Northern Star, who reportedly have been underbidder to Saracen for the Golden Mile. The only negative: Next resource increase incl an initial indicative resource, is only expected for May 2020
Graphex Mining - the feasibiliyt study is expected any time soon. I think that capex numbers might be higehr than originally expected, as teh company is switsching from a Chinese built plant - usually, they are cheaper. But the project ahs had so mach fat in it - this should still be a very positive study. The only question is, whether Castlepeak will finance the lot, still. I obviously cannot answer this - and the above mentioned cost increases are just a gut feeling on my side, anyway. What is most imporatnt is the fact, that demand for the special product Graphite is planning to produce is still very high. In more recent times, GPX management ahs also spoken to European, possible offtakers, in a bid to have a more divers ( and less risky ) customer base. Never good to rely on Chinese demand only! They found, that their product is also wanted over ehre - that´s good news. But anything else is pure speculation, we just will ahve to wait for the feasibility study here!
So far so good - have a nice evening!
WS
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