Good afternoon
markets are surging higher! The amazing Zoom-result yesterday has put renewed fire under NASDAQ, which is now up by 33% this year! And strong manufacturing as well as PMI´s around the world are also helping. Retail Sales seem to be lagging, though - certainly in Germany. Today in the US, Factory Orders were strong, as were Durable Goods Orders. The US$ strengthened, and took gold down ( 1941 US$ currently ) and are leaving base metals only mixed after a strong start today. Nickel is up again in late afternoon.
The German GDP is now estimated to be below -6% this year, with a 4+% recovery expected next year. So not as bad as feared, but the recovery also a bit lower than expected so far. Australia surprised on the downside for this measure, clocking up -7% GDP last Quarter vs the first Quarter. And poor old India is really suffering, with a 20%+ fall last Quarter!
Battery Sales were down 17% over the first 6 month of the year, but recovered to +21% in July! Car Sales generally also also strongly on their way back up, as are sales of appliances in China. Both are helping the base metal complex, as is Warren Buffetts new interest in the sector via large purchases of stock in Japanese trading houses.. Copper, zinc and nickel are up by roughly 10% this year, and by 45-50% from the lows in late March!
Gold ETF´inflows have been slowing somewhat - that is a little worrying, as ETF´s have been the major buyers of gold recently. Turkey also stepped up it´s gold buying last month.
Cardinal has received yet another takeover bid at 90ct - in this enviroment, the story is not necessarely over as yet, while De Grey Mining has shot up by another 20% to a market cap of about 1.6 bill A$. DEG have made great gold discoveries in the Pilbara - I have to say, that I very much doubt, whether they are worth that much! In any case, good news for the punters, and these discoveries are what is driving speculative interest in the Australian market.
Panoramic Resources - you know that I am holding a sizeaböle position here, on which I have dropepd quite a bit of money! But there is hope! A few weeks ago the company announced a new Life of Mine Plan, which was pretty disappointing. This plan has been using extremely conservative parameters - something which I can well understand. If I would be the MD ( who came in in November ), I would have done the same under the circumstances! PAN used a lower reserve grade than in the past ( 1,23% nickel, which is probably erring on the conservative side by at least 10% ), higher mining costs ( which might be 20% overstated ), higher processing costs ( 10% too high? ), and lastly, at least 10% lower throughput and mining rates. The company arrived at All-In costs ( before headoffice ) of about 7,20 - 7,30 A$, depending on by-product credits. When Macquarie issued a new research update the other day, the stock even traded below the rights-issue price of 7ct! The analyst valued the stock at only 7ct - based on even more conservative ( you might call it: wrong - operating costs, and using Macquaries relatively weak nickel outlook. Late yesterday, Foster Stockbroking also issued their report, which has a target of 14ct! And as we know, nickel prices are racing - even though there is doubt, how sustainable the current, near 16.000 US$/t price is in the short run. I am still a believer in PAN and have bought a few more here and there. As you might remember, Western Areas is now the largest shareholder with nearly 15%, and Zeta Resources´influence over the company is much reduced, which is also good news. And finally - probably stupidly - management of WSA stated in a recent analyst call, that they might well look at a takeover, once the ventilation shaft would be finished!
Panoramic is now drilling again it´s highly prospective underground resource, and progress to develope the ventilation has been at least on target. It will be all finished in the 1st Quarter, probably in January. Panoramic have enough cash to finish all necessary development work on stpes, as well as on the ventilation. To go into production as planned in the 2.Quarter 2021 ( and provided nickel prices are satisfacory — I guess abover 14.500 US$ or so ) , the company will need some more working capital. Since the mine will be dramatically de-risked by that time, bank- or offtaker financing should be no problem. Macquarie was talking about another 40 kmill A$ rights-issue - I would rule this out! So I am sure, that PAN will NOT need more equity to come back as a producer!
Generally, I think the EV-story has only just begun! EVsales numbers around the world are increasing dramatically now - helped in many cases by subsidies, but mainly because of a massive roll-out of new models this year and next. You onyl need to look at this crazy Tesla price, and you know, that the story is happening! So while we might not see nickel back at 20.000 US$/t within our normal investment horizon, 15-16.000 US$ are a nice price for Panoramic, and probably a price which is also needed to spark fresh investment in conventional, battery-nickel! You only need to look at the chart of Panoramic to know, that this stock is going to make you money - provided nickel will not fall out of bed in the longer term, which is not going to happen, I think.
Evolution - like all larger , Australian gold producers , the share price is way below recent highs. The first reweighting by generalist funds into the sector had happened, and the stronger A$ has eaten into extremely fat margins for these companies. But the current price level is still a very very healthy one! Nothing is cheap in the sector - companies have re-rated - but EVN are correctly priced for this gold price, and I do prefer it´s reliability and it´s management to the other mid-sized, Australian producers.
Evolution held it´s virtual investor day the other day, and I think the story has been very positive. Jake Klein ahs guided for 670-730.000 oz production this year, 700-770.000 next and 790-850.000 oz in 2022/2023. AISC will be moving from 1240-1300 this year, 1220-1280 next year, and 1125-1185 in 2022/23 - potentially higher, if the gold price / copper price will be higher, resulting in increased royalties. Sustaining Capital will be roughly stable, fluctuating bewteen 110-and 130 mill A$ p.a. / exploration expenditure of between 70-100 mill A$ p.a. Major Capital will be around 260 mill A$, reducing somewhat over the next 3years. This is all nice and good, but in itself, will not drive the 10 bill A$ market cap of EVN any higher - unless the gold price continues to move. The smallest increase in potential valuation will come from Mungari, which has had some issues, but achived a major, operational turnaround in the year just finished. EVN management believe, that Mungari is now on track to be a 115.000oz producer for 10 years to come. Cowal is larger - they will increase production from about 270- to 350.000 oz by going underground for a long time to come. But the big story is Red Lake, which is shaping up to be another fantastic aquisition for Evolution. Resources have already been upgraded to 11 mill oz. The mine is targeted to produce between 300.000and 500.000 oz in the longer term, for the long term! The largest increase in production would come from developing open pits, from a resource, which effectively starts close to surface, and containes 4.3 millt at more than 10g gold. This will not come easy - a small township and surface infrastructur will have to be removed. But obviously, the potential price is fantastic! At this point, nobody will inclued this in estimates - too long is the time frame ( probably 4-5 years ), and no feasibility study has been done - so costs are anybodies guess. Capex will be high - no doubt - but these plans could bring Red Lake back to the old days, when itw as a world class mine! But in the meantime, EVN have made big progress to cut costs at the existing Red Lake, and to simplify the operation. At the same time, EVN are working to increase mining rates, to fill up the existing plant, which has substantial free capacity. Overall - a little bit early to come to a fix conclusion ( i.e. hard numbers ) on this mine - but the future looks pretty exciting for Evolution. Hard to see a rerating over the enxt say 6 month - but the company will be a very save, reliable producer of around 700.000 oz,a nd will deliver significant free cash to shareholders. Performance should be at least with the gold price!
Genex Power - hopefully, this is the last time I have to tell you, that it´s happening soon! All existing agreements mature on 30.9. ( unless prolonged, as before ). The company is still waiting for the service agreemnet with Queensland Government for the transmission line. There are elections in Queensland next month - government going into hiatus on 6th of October. I expect them to wait for as long as possible with the news - tehy will want positive sentiment from these announcements as close to the election as possible, I guess! So I would hope for the announcement around the 20th of Sept….All other agreements are in place for financing etc, selldown of the asset at asset-level, J-Power to atke additional 25 mill A$ in equity at Genex, effectively at about 26ct. I think the stock will be worth at least 30ct, once these announcements have been made. Disappointingly to me, the company has raised 21 Mill A$ in a placement + offered a 7 mill A$ SPP at 22ct. In my opinion, the timing has been very bad! Anyway - it has happened. The company wants to develope a 50-75 MW Li-ion battery project in Queensland, which will give them the ability o arbitrage electricty prices…might be a good idea ( but I know little about it at this stage ), but I regard the timing just ahead of the go-ahaed for pumped hydro as poor! Nevertheless - GNX are worth a lot more, once pumped hydro has been approved ( hopefully! ) within the next 3 weeks!
West African Resources - the company has delivered a profit for the last half year, depsite only going into production in May, and without any production from underground as yet! Fantastic! Very important news should hit the screens before the end of September: Deep drilling results ( which have never disappointed so far! ), beginning of production from underground. The market will watch for grade reconciliation ( production drilling has delivered exceptional results! ) and production ramping up as planned, as this is a very important part of the project! The company is down to net debt of only 200 mill A$….if all goes to plan, WAF will be debt free by the middle of 2021 - just about 1 year after going into production! So ver the next few month, more good news to come : First more or less full Quarter of production from underground, more drilling from Sanbrado, and drilling form the newly aquired ore body from B2Gold 25km away, which will start immediately after the wet season has finished - probably by early October. This should give the market some visibility to look at WAF producing 150-200.000 oz of gold for 10 years, following 217.000 oz on average for the first 5 years. I think costs might be impacted a little bit by COVID etc - but I still hope them to be at around 550 US$ vs early expectations of 500 US$ ( which would still be lower than what some analysts are going for. It remains one of the few stocks, which are undervalued….The Mali coupe has not helped them, even though WAF are active in Burkina Faso. But the Americans probably don´t know, where that is compared to Mali!
Chalice - in my absence, reported some very nice intersections from Julimar, their PGM/nickel/Copper discovery in WA. Long intersections of up to 30m with 3-4-5 g Palladium, 0,4-0,5-0,6g Platinum, some nickel, copepr and cobalt are giving more hope to a large resource at good grades. A few days ago, they also announced some first, positive metallurgical results. The stock had a good run following these announcements and is no bargain - but probably worth it´sprice. I have lightened off, but am still holding a very reasonable position.
Have a nice evening! WS
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