Good afternoon
Consumer confidence in the US is still very high - Durable Goods Orders are strong, but mainly based on defense…
Everybody is talking about the virus, and it´s potential economic consequences. People point out to me, that Influenza is responsible for 20.000 deaths or so every year…and that the numbers involved in the new Coronavirus are still very small indeed. But then, the highly unusual measures being taken, like effectively cutting off 45 mill people, sending 2500 doctors and nurses, building hospitals etc are very highly unusual - in fact, they are unparralleld. One has to ask the question, whether we ( as the public ) do know everything we should about the virus??? On the positive side, it´s good to see markets steadying, and it´s also good to see, that the very substantial majority of cases is happening in one prvince, indicating, that the extreme measures taken yield some success. We will find out - but in the meantime: markets hate uncertainty!
But risk is on again - at least a little bit. As the day progresses, equities are getting stronger, and base metals - while bonds are giving up some of yesterday´s gains, and gold is back to around 1570 US$
RIO seem to have some big obstacles left to progress their giant copper mine in Mongolia…government agreements, fresh cash needed, cost overruns still continuing…the underground mine will not be in production before 2023, and possibly later. RIO´s 51%-owned Turquoise Hill is a problem for them…
Saracen - excellent Quarterly from them, again. Record production of 120.000 oz at 1100 A$ AISC, with guidance of 500.000 oz this financial year, and 600.000 oz next year - driven by the recent aquisition of 50% of the Golden Mile in Kalgoorlie. SAR do purchase some ore for Carusoe Dam - so AISC have do be adjusted for that, which adds another 150 A$ or so to the last Quarter´s AISC - still very reasonable !! Exploration success coupled with what could turn out to be a good aquisition ( Golden Mile ) have catapulted Saracen into the small league of high class Australian gold miners, generating significant free cash flow. The NSTSAR JV, which operates the Golden Mile now, wants to update the market on the significant ct-back currently ( and for the next 2 years or so ) undertaken. This could be another positive trigger for the stock.
Resolute - is making use of the capital raised recently and is buying back a royalty, which financier Taurus had over their recently aquired Mako Mine in Senegal. I think this is positive - but not really value-adding to anything.
Perenti Global - better known as Ausdrill, it´s previous name - has been under pressure ever since Semafo had to close it´s mine in Burkina following a terrorist attack in early November, and an unforeseeable (and not related to PRN ) end to a Ghanaian manganese mining contract. Following those two events, PRN cut their full year guidance from 140 mill A$ profit to 115-120 mill A$, by 15-20%. The share price since then is down by 34%. While the stock was not really expensive before those events, it´s certainly cheap now, and includes a significant risk-premium for it´s activities in Western Africa. PRN have recently started mining at West African´s Sanbrado project, and will fully ramp up soon to full production. PRN´s main activity is contracting for gold miners, open pit as well as underground - and they are a leader in both areas. I think it´s very worthwhile to buy a few here…the fall is overdone. The company is still a little bit too heavily leveraged for the husiness they are in - approx 1.3x EV/EBITDA - but this will reduce over time , as they are increasing free cash flow over the next few years quite significantly , despite a healthy 5% dividend yield. I think the stock is worth closer to 2$ than 1,50$/share, currently trading at 1,53A$.
Gascoyne - update from the administrator. The last Quarter was still a bad one, but some light at the end of the tunnel. The administartor continues to invest in a cut-back of the Gilbey Pit, which will reach the higehr grade zone very soon - probably already has. Gilbey represents 90% of existing reserves, and the administartor is hoping for a 7 year mine life . They expect 70-.80.000 ou of production at around 1800 A$/oz all in costs - whereby they see production slightly falling after 2020, but all in costs also stabilizing at around 1525 A$/oz.The strong A$ gold price is certainly helping, and the way operations are shaping up, the chances for equity-investors to recover some of their money are rising! Never mind - investors will loose a lot of money here, but at least they should be able to have an option for the future here!
Have a nice evening
WS
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