Good afternoon
Chinese PMI´s very strong today - but obviously coming from a very low base. Anyway - China seems to find it´s way back - except for that export markets are now contracting big time.
Goldman´s now see GDP in the States plunging by 34% in the second Quarter, and recover by 19% in the third. As you know, I am pretty cautious - but given that consumption is 65% or so of the US economy, with some resilience in some sectors, I think that´s an excessive number! At least that´s my gut feeling!
European equities started the day stronger, but came gradually down to being slightly negative by mid-afternoon, and are now slightly green, with Us markets only down a fraction.
Base metals not doing that much but all green now, with copper up 2%. I think these metals have already traded down into the respective cost curves, and that´s why we see some resilience here. Not many companies make solid cash at 2,20 US for copper, or at 5 US$ for nickel!! Also, we obviously have some strong supply issues with corona-closed or reduced operations in many countries, incl top copper producers Chile and Peru. You can be assured, that all investment decisions in new capacity are being put on the backburner these days, anyway!
Gold ETF´s continue to see strong inflow, while Russia will stop buying gold as at this Wednesday. That´s a negative - but booming physícal demand from investors easily makes up for that in the moment ( and also for reduced buying from jewellers!) Gold is currently trading at 1610 US$ - down a little from yesterday but nowhere justifying this crazy World Junior Goldminers Index, which is trading roughly at the same level,when gold was 1100-1200 US$/oz! I can only assume, that investors are pricing in mine closures because of corona - but the Index is down much more than most other things recently - and VW and Daimler have closed their factories already! I still believe, that it´s wise to invest in something like EVN ( strong balance sheet, many different mines, 90% resident work force ) and West African Resources ( I would much prefer to be miner in Burkina than in Canada in the moment! ). I think both stocks are outstanding cheap below 4$ for EVN, and at round 41ct for WAF - and yes, I am talking my book!
Some good micro news from Australian companies today:
Oklo - another round of really exciting drilling from Seko in Mali. SK1 North got extended to more than 500m strike length, with hits like 38m at 5,6g gold / 32m with 10.5g / 26m with 7,5g etc….They had reported good results from SK2 and SK3 just a few days ago. Grade is king, and the market is paying for them! Something like Tietto with 2.2 milloz already under their belt, find it hard to attract significant interest - Oklo, which has not had a maiden resource estimate out as yet ( will do in the 2nd Quarter ) will be below 1 mill oz at this stage! But the high grades, and the neighbourhood to two large, existing mines in easy trucking distance, make this a very desirable asset. More drilling is taking place, and more assay results are outstanding - so most probably more good results pending! I bought a few more today…despite some uncertainty, for how much longer they can explore. Contrary to mining , exploration I guess is no essential business! I think OKU are still a buy - great shareholders, great cash position, great projects coukpled with ongoing news flow and experienced management are an excellent mix!
Liontown - announced some more fantastic lithium drilling results for Kathleen Valley. Few people want to know about lithium in the moment - and that´s very understandable! But 96m with 1,9% incl 36m with 3,6% LiO2 are oustanding. The company is defining a very high grade underground resource here, additional to their large open-pit resource. Stock has actually held up quite well since all this s..t started at 6,8ct/share - so some people are indeed buying straw hats in winter. LTR also announced, that given recent drilling success and the terrible enviroment, rather than doing a full final feasibility study, they are just doing an updated PFS - including a potential addition of an underground mine, and also very important, more metallurgical work. Improved recoveries could have as much impact as a better lithium price! I would not be completely surprised, if some corporate would also decide, that buying straw hats in winter is a good idea!
Genex - since closing the deal with EnergyAustralia, quite a few broker updates were published, mostly valuing them at 33-35ct/share vs the current 15ct. There certainly is a limited dgree of execution risk to build the hydro-power station - but I think that´s very excessive at these levels. The share price should be well underpinned by the existing solar project at Kidston, plus the second project Jemalong in NSW, currently under construction and on target for operation by year end 2020 ( I would not be that surprised to see this being a few month late due to corona ). The agreement with EnergyAustralia is confident - so it´s hard to do numbers on it. But NAIF is giving them a 610 mill A$ credit line, and even while this is kind of a government support agency, they need to make sure, that credit facility can be serviced as well as paid back - so cash flow must be very considerable and the project will be running for 80 years. In the original agreement, EnergyAustralia was going to take equity in the project as well, to largely finance GNX into it. As this is not going to happen, somebody has to be found now to replace them. Thjis could well be JD Power from Japan, incerasing their planned investment - or somebody completely different. For this project, interest should be quite high - and the company is actively searching and talking to interested parties.
Unfortunately, always something left to do to get to fiancial close! But I think Genex have done a good job to hold the project together through trade war and corona, and the evyr fact, that they have been able to get to the current state in this enviroment, is testimony to the quality of the project. There is a lot of upside from current levels - unfortunately the stock only went from 9ct to 15ct on the back of this announcement…a few month ago, it would have gone from 20 to 30ct…and always keep in mid: the solar farms will produce for 20 years at least, the hydro project for 80 years+ !
Chalice- I saw the first serious broker report about them today ( share price target 80ct for now, with a chance to multiply your money ), since they announced this fantastic hole from their Julimar project 70km NE of Perth….containg nickel/copper/Pd and Pt! The broker estimates 7,5% nickel equivalent grades in the hole, with the metal content worth 750 A$/t! The broker compares it to the recent Nova/Bollinger find, which was later pruchased by IGO for 1.8 bill A$. Chalice is still on the run - 57ct today! - and the best is: contrary to all experience, they do not need fresh equity, with something like 26 mill A$ cash+investments! And not to forget: We all liked Chalice at our recent conference for it´s Victorian gold ground - the high hopes for this one are very much alive as well! Chalice continues the most remarkable run of the Tim Goyder-camp: First Liontown ( see above ) with their world-class lithium asset, followed by Strike Energy with their fantastic gas find in Western Australia, and now this one! Good on this Australian gentleman-investor!
P.S. mind you, Chalice is only a one-hit wonder at this stage - but every geologist I am talking to in Western Australia is highly excited!
have a nice, corona-free evening!
WS
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