Good afternoon
some people are crazy…well at least in my opinion. Amazing, how Softbank partially created the recent frenzy with their heavy buying of calls in Tech stocks! Even more crazy, that they might well be proved right! Goldmans are still positive, some volatility aside - and they
Equity markets have staged another buy-the-dip recovery! But NASDAQ still seems to be lagging - at least looking at the futures. Europe is pretty strong today, and base metals are trading ok - copper is making a new high. The US are closed today.
Chinese export numbers were a touch down on last month, but were strong YoY. But generally, economies are having difficulties to recover at the recent pace, despite all measures. Industrial Production in Germany increased by 1,2% in July, but that was less than expected. Whatever happens over the next few month - corona is still with us, and strongly rising numbers in many countries are still a worry. At the same time, the unprecetended spending binge continues - in this context, it is important to have in mind, that elections are looming in the US, and also in Germany next year…so these guys are doing what they can to hold up their respective economies. We will undoubtedly pay the bill…income taxes for the wealthy will increase, whoever wins - but after the elections. In any case, the damage to state finances and central bank balance sheets has been done - whatever we think about the necessity of the measures been taken. I therefor continue to be a strong believer in gold, even though the price of it is struggling somewhat in the moment.
Low interest rates, and a lower US$ are here to stay - and inflation has a better chance than for many years to raise it´s ugly head!
But for some, the going is very tough in the moment, despite the pronounced recovery of base metal prices since the end of March. One of them, unfortunately, is
Metro Mining - MMI has announced recently, that they will close their mine in Northern Australia at around the 15th of September, unless tehy can find new buyers of bauxite! The aluminium market has been under pressure ever since the virus hit. While the price has gone up quite nicely recently for alu as well as for alumina, this has only been achieved at the price of closing capacity. this has led to reduced demand for bauxite. Also, the lower growth enviroment had substantially decreased the cost of freight for bauxite, making Australian bauxite less competitive ( freight from Guinea is substantially more expensive than from Australia, and falling freight rates had a much greater impact for it than for freight costs from Australia ). Also, most of the large Guinea-based mines are Chinese -owned….Still, the desire of Chinese alumina smelters to diversify their supply should see a come back for demand for Metro´s product next year.
This development is a real pity for Metro, which operationally, was on it´s way to a record year and has done very well so far. Even with only a few month of production, the company will produce positive EBITDA this year. The mine can be restarted very quickly, because of the simplicity of the operation.. And debt levels are ok - the company has cash of 28 Mill A$, and only 10 mill A$ in net debt. But the situation is certainly putting a very big question mark over the planned expansion to 6 millt p.,a., which would have made them an even stronger cash producer. However, unless they can produce a miracle and establish new sales contract very quickly, the mine will close next week and only re-open by April next year! In markets, this is a very long time! So despite what probably is a deepl-value share price of 6ct, there is no big hurry to buy more in the moment. I am still convinced, though, that we will see much higher prices for MMI in the future, so rather than trying to pick the low, I will keep my shareholding.
Have a nice evening!
WS