Good afternoon
More of the same…equities are stronger again, not much happening in bonds, currencies and gold!
When I look at Democrate candidates in the States and their performance so far, I think Trump´s chances must be rising by the day! I hate to say it - but for markets, it´s probably a betetr thing tho have him again, vs Sanders or Warren…
Germany had made the decision to increase EV-subsidies a while ago, but it was never implemented. Now it´s happening….from the 1st of March, cars with a value of below 40.000 Euro will get a 6000 Euro subsidy ( vs 4.000 before ) and cars above that price will get a 5000 Euro subsidy ( vs 4000 before ). Especially for the lower-value cars, that´s significant - and the Germans love a bargain. I am sure, that a lot of potential buyers have been waiting for this. A majority of new models are available below 40.000 Euro. I believe, that the impact from this subsidy being finally implemented, could be quite substantial in a market, which started to gain some momentum anyway.
The virus story is cooling down further today - the rate of increase for infected people has hit a new low yesterday, and in absolute terms, the last time we had such small number was on the 30th of January. Big headline numbers like 500.000 in Hebei alone, seem to be very big shot too high..I think it´s fair to say, that the extreme Chinese measures implemented ( even though too late! ) are doing their job.
Cassini - I won´t dwell on that too much, as will see them in Zurich next week anyway . But in my opinion, the results of the very detailed pre-feasibility study done by OZ Minerlas, their JV partner, and announced today, disappointed in so far, as capex has gone up from 730 - 800 mill A$ to 1 bill A$. Some increase had been expected - but not quite that much. It makes the problem for Cassini, to finance this nickel/copper mine, even harder. 26 years of mine-life is very long, especially for Australian standards - and costs of 1,30 UIS$ lb after by-product credits for the production of 22.000 t of nickel p.a. are also good. But the IRR of 20% is not fantastic. The stock came down today quite heavily - that was probably very harsh on CZI and may have represented some short term traders just getting out . At realistic metal prices, but an agressive A$ long term assumption of 0,67 US$, the NPV of the project is 800 ill A$ or about 260 mill A$ for Cassini vs a market cap of 40 mill A$. But using the Macquarie Bank long term forecast for the A$ of 0,75 US$, the NPV comes down to just 300 mill A$ or 100 mill for CZI. I think the outcome here will be a friendly takeover from OZL , and hence, I think the stock is worth accumulating.
Evolution - record result out today, as it should be in light of the gold price! A$ gold was averaging 2164 A$/oz over the last half year, vs 2321 A$/oz as at this morning. Evolution has very limited hedging - just 25.000 oz per Quarter until June 2023 for a total of 350.000 oz or 100.000 p.a. ( at a production of about 725.000oz p.a., very moderate ). The new resource/reserve statement stated a decline of reserves of 800.000 oz to 6,6 Mill oz ( mainly diven by depletion, but also a previously announced change of LOP for Carlton, which led to a 300.000 cut in reserves ). Resources were up to 15,2 mill oz, driven by 1.2 mill oz resource gowth at Cowal. The first reserve estimate for Cowal Underground is due this year, and we should expect a large reserve increase here of perhaps 1 mill oz. The result itself was pretty meaningless - EVN report very detailed numbers with their Quarterlies and hence, the Half Year Financial result should not have been a big surprise to anyone! Jake Klein reiterated EVN´s commitment to run a sustainable business, also generatiing profits throughout the cycle. The company doubled the div to 7ct/share for the Half. Some concerns in the market as to the water-situation in Cowal should have been put aside by the fact, that only 20% of the water requirements are from surface water, going to zero over time - and also some 55mm of rain in Cowal over the last few days. The upside in Evolution is mainly coming from Cowal, and the new aquistion Red Lake in Canada. If they can turn around this starving asset over the next 12 month or so, it could add 200.000 oz at below US$1000 AISC and another long life aset ( reserves of Red Lake are under review by EVN and have not been included in the above mentioned reserve statement ).
Mineral Resources - good result out today, from iron ore operations, but especially the Minining Services Division. It´s little doubt, that Lithium will not make any money for seome time - and when it does, it won´t be super-profits in the foreseeable future. I guess we all agree, that iron ore prices will not stay at these elevated levels - Vale is ramping up agai, and all the majors have total costs of something like 35/40$ at worst, including transport to China ( over time, these super-margins will be eroded ). So : Iron ore price not getting any better - MIN very vulnerable to lower prices, as high cost producer / lithm profits will probably never reach the big numbers expected some time ago . Time let some go, perhaps? I am not sure about the timing - they might go 1-2 $ higher, but I think that might be it! When we tought the stock could go way higher, we also expected a dividend of 1.5-2$/share a bit down the track - the market is now expecting 0,7$ or so…That´s a good expression of expected cash flow! Much cheaper probably are the 8.125% US$ bonds 2027 at 110, yielding nicely in a company, which will definitely not go bust!
Have a nice evening
WS
WS
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