Good afternoon
Save the date….21st of February, the Australian Resources Conference, Hotel Baur au Lac, Zurich
economic confidence in Europe a bit stronger than expected…China beefing up infrastructur spending
Holdings of Gold ETFs are rising yet again…Palladium strong , the combined Plat/Pall price in A$ terms trading at a new high at 4030 A$/oz.
US markets are closed today, and I guess anyone sensible will take tomorrow off as well..
Investors are a bit concerned of the Hongkong situation getting in the middle of the trade negotiations…hence some profit taking at record high stock markets. Also slightly weaker base metals - nickel is testing support levels again at 14.000-14.200 US$/t.
Strike Energy - the stock has come under pressure, because of a lack of newsflow over the next few month - but one thing has certainly changed since summer: From a speculative hopeful, Strike has become a strategic asset in Western Australia - or better, their recently discovered West Erregulla gas resource of 1.18 TcF, with further upside of about 270 bcf from the Wagina formation, which has not been included in the above estimate.
The resource has got further upside from more drilling next year, starting mid-year, and certainly from the large acreage position in the Perth basin. Let´s not completely forget about Jaws - while it´s not looking too sexy in the moment, this asset could still be worth anything between say 10 mill and several hundred million ( as at today, it´s probably worth 20-30 mill A$ - so pretty irrelevant to the overall value of the company ). West Erregulla will be the cheapest producer of gas in Western Australia, alongside the neighbouring Waitsia, which is smaller ( 880 bill cbf resource ) , but of similar, excellent quality. Mitsui paid 500 mill in the takeover of AWE for the 50% share of that company in Waitsia, Beach subsequently paid 476 mill for their 50% share in the takeover of Lattice. These two corporate transactions would put a value of 450-600 mill A$ on Strike´s 50% of West Erregulla ( + 30 mill cash in the bank ). If I want to be conservative, I deduct 10% of that valuation, due to Strike having used a company consultant to estimate the resource, I still arrive at a value of 430-580 mill A$ for STX´s share = equivalent to 25-34 ct/share versus todays price of 18ct. This valuation offers upside of between 40- and 90%. Strike have the potential to double this resource or more, from further, planned testing of West Erregulla, as well as from their other acreage in the neighbourhood ( seismic testing is planned for the next few month, which will give us further hints as to the potential ) On top of that, we have Jaws, and the Cooper Basin acreage. Furthermore, Strike have recently completed a oversubscribed placement at 23ct of 30 mill A$ - enough to drill two wells, and potentially also enough to bring stage 1 into production by early 2022…that sounds like a long time away, but in fact, is only just over 2 years from now!
Strike is also governed by a very strong board of directors, managed by the excellent Stuart Nicholls, and helped by some world class consultants.
The market seems to anticipate a paper takeover of Warrego, the JV-partner, which would probably put some short term pressure on the STX share price - but without any doubt, would be positive for the corporate , overall valuation of West Erregulla.
I am brave and confident enough to say, that STX have moved from a speculative play, to a value investment - with extremely little fundamental downside, but several hundred % upside potential. All you need is some patience - but not even that much! And who knows - there are enough cashed-up and financially very capable operators with existing gas assets, and declared interest to add to them, in Western Australia - like Woodside, Beach, Mitsui, Mineral Resources or even Santos. Chairman John Poynton bought some more stock at 18,5ct - you might want to do the same! You will remember my recommendation to take profits in the high twenties - today I recommend you, to buy them back at 18ct!
Evolution - at the AGM, Jake Klein talks in some detail about the aquisition of Red Lake…I have nothing to add, but repeat my view: He is not betting the company and is taking a very limited risk, to add a project with potential to become a Tier 1 asset again…Interesting: The company has a new board member, the ex-CFO of Goldcorp, and a Canadian. It´s the first North American on the board, with deep connections in that capital market. I think that´s yet another smart move by the company.
Newcrest - Macquarie has published some agressive and interesting research today , putting into hard facts, what I have been saying for a long time: There is no reason for the premium rating of Newcrest, and hence, no reason to own it! Macquarie believe, that Newcrest could have to invest 10 bill $ over the next 10 years into it´s existing - and new mines. Debt rising, free cash flow falling like a stone, even production falling, at least from existing mines ( and quite considerably so! ). I agree - larger funds should not own any Newcrest, but switch into Evolution and Saracen! Even Newmont looks cheaper!
Have a nice evening
WS
Schröder Equities GmbH
Seitzstr.7a
80538 München
Tel. +49-89-4613440-0
Fax +49-89-4613440-10
email: wschroeder@schroeder-equities.com
website: www.schroeder-equities.com
eingetragen im HR München, HRB 166985
Geschäftsführer: Wilhelm Schröder
The information contained in this communication is confidential and is intended only for the use of the addressee. Unauthorised use, disclosure or copying is strictly prohibited. If you have received this communication in error, please delete it and notify us by telephone at +49-89-4613440-0, by fax at +49-89-4613440-10 or by e-mail at wschroeder@schroeder-equities.com immediately. Please note that this communication does not constitute and may not be construed as investment advice and / or referral to buy or sell financial instruments. Unless specified otherwise, the views expressed in this communication are solely subjective notions of the individual sender and / or the entity or individual stated as the author of any information submitted. Performance in the past may in no case be considered as an indication for future performance. Please also note that Schröder Equities GmbH and / or its officers or employees may have interests in financial instruments referred to this communication. A current list of shareholdings can be emailed on request. Furthermore, our clients are hereby informed that Schröder Equities GmbH renders advisory services to Nestor Australien Fonds, an investment fund administered by Nestor Investment Management S.A. Luxemburg. Please also note that e-mails can be intercepted by