Good afternoon
US imports fell last month, as the housing market and consumer confidence continue to look ok
No significant action today in equities, metals or gold…bonds stronger. Markets expect the trade deal….
The grandmaster of promotion, Mr.Friedland, believes that Congo is a better country to invest in than Chile…I think he might be talking his book here…Congo is still one of the worst, but Chile and basically of of South America are fast deteriorating!
Gold ETF´s had their largest inflow in a month yesterday…
13 French soldiers got killed in a collusion of two helicopters in Eastern Mali, not far from Niger, while battling. Very sad…this is a ugly, little war down there!
The day of big M&A in broking, pharma, luxury goods - but also in the gold space!Kirkland making an all-paper bid for Detour Gold in Canada, and Evolution buying the Red Lake mining complex from Newmont.
Kirkland´s transaction is not liked by the market and is seen by some as reducing the asset quality ( I know nothing about Detour myself! ), but increasing the number of mines being operated to three ( which I think is a positive generally, especially given their dependence on Fosterville.
Evolution - is more complicated! Red Lake is a pretty complex asset, consisting of 3 mines and two plants. The area has produced a staggering 28 mill oz since the second world war, and had it greatest days a few years ago, when Goldcorp mined out a 60g-ore body! As recently as 2018, the mine produced 270.000 oz at about 1000 US$ AISC - this year, production is falling to 150-160.000 oz at 1600 US$ AISC. Evolution sees as a big attraction, that the mine has been wrongly managed, starting a few years ago ( well EVN say that very much more politely than I can do ), and subsequently, suffered from very low investment. Finally, the mine became a small asset within gigantic Newmont. EVN have bought the asset for 375 mill US$ plus another potential 100 mill US, in case of pre-defined exploration success. The company has also earmarked 100 mill US$ in capex ( mainly underground development )+ 50 Mill US$ in exploration over the next 3 years, with a target to bring production back to above 200.000 oz p.a. at around 1000 US$ AISC. I guess at this stage, both numbers have to be an indication - I am sure, as things move along, capex/development might increase a little, and exploration could as well - but only in the case of success! EVN see a chance to substantially increase productivity, and perhaps even more important, to define a new high grade resource. Currently, the mine has a stated reserve of 2.1 mill oz at 7g gold, and a massive resource of 7 mill oz at 11.2g - but this does not account for recent depletion, and EVN will also apply more conservative parameters . They expect “their” reserve to be up to 40% lower, once calculated.
Evolution have bought a potential, very long mine life asset, which could well be one of it´s top 3 assets alongside Cowal and Ernest Henry. But until then, there is some work to do, and money to be spent! I think the target of 3 years they have given themselves is a conservative one - I am sure, that Jake does expect to be there earlier. But the example of Northern Star´s Pogo shows, that these underground turnarounds do need some time - and I am certain, that EVN will want to make sure, that they do not raise expectations too high. IF they get to their target - and I guess internal hopes are not for just 200.000 oz p.a., but potentially quite a bit higher - this is a good aquisition, without betting the house on it! EVN can easily debt finace this aqusition, and will leave dividend policy unchanged. I do like the deal, as it gives EVN the chance to significantly lengthen the average mine life, once again increase the asset quality, and gives them the first, measured transaction in North America. And history also tells us, that you buy relatively safe from the majors - a lot of fat there, usually, and a re-motivated work force can do wonders! But I think we will need to be patient to find out, whether this deal is as good as it sounds - and without being a mining engineer, I would not at all be surprised, if EVN would have to spend more than 100 mill US$ on this asset! For gold bulls, I think it´s a no-brainer, as Evolution has bought many many ounces at a very reasonable price! And for geologists, the deal sounds like paradise, to add success and ounces over the next few years.
And let´s be frank: We all like Jake´s mantra of “being a profitable gold miner throughout the cycle” - but a bit of growth and potential add some spice to my favourite gold miner!
Peak Resources - I did not mention this one for quite some time….to remind you: Rare Earth in Tanzania, to be processed in England…I guess it´s not a surprise, given recent talk about the dependance of the US on China for basically all of their Rare Eart supply, that the company has received “a letter of interest” from the Overseas Private Investment Corp, a US government agency, to consider financing the project, subject to all sort of things. Early days - but certainly a big step forward . The company saw the highes turnover ona single day ever ( I believe ), about 60 mill shares changed hands. The stock could not hold on to all gains, but closed 11% higher. No doubt, that there are a lot of stale bulls in this stock! I am hesitant to recommend the stock, given the weak market in most rare earth elements…but there is little doubt, that this market could explode at any time and it would make a lot of sense for the US, to lessen the Chinese influence here.
Have a nice evening!
WS
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