Good afternoon
finally, the eyear has started in earnest! Moving the office and watching all this craziness has occupied me somewhat! But back in full swing now!
The year started with yet more strength in equity markets, as well as in commodities. It seems to be consensus, that the Democrats will print money and increase government speneding substantially - especially in areas of broadbank and Alternative Energy. Good for some metals like copper, and certainly some more commodities like lithium. The US will become greener - probably in the car sector as well.
Gold should have been stronger in that enviroment - also in an enviroment, where some people feared for a civil war in the US. And in fact, we might have gotten close - but thank´s god, it looks like Trump has found enough enemies now, to prevent the worst. Still, the fact that 56% of Americans ( only!!! ) would like to see him stepping down immediately tells me, that there are a lot of very unhappy people around in this country. The situation there leaves me speechless - and you have read enough about it, anyway! But strange enough, gold did not profit from this except for a few days, driven lower by rising interest rates around the world. The biggest risk, though, I can see here for technology stocks. Their sky-high valuations are derived by very low interest rates for a very long time, and hence, are very sensitive to higher interest rate assumptions.
The stand-out recently in commodity markets has been LNG, liquified gas. The spot price has gone through the roof - some articles are quoting prices in the mid-thirties US$ - driven by a cold weather in the Northern Hemisphere. Prices had hit an also crazy 2$ during the corona crisis . In any case it shows to us, that some of these commodity markets are very vulnerable to one side or the other, depending on issues the market does not expect!
Base metals started ultra-strong, but within Friday and today, have almost given it all up! Again, higher interest rates are probably teh reason , especially for today´s sell-off. Copper is down 3,2% currently, as is nickel.
Strike Energy - have found what is probably a lot of gas - but the pressure has been so high, that the well had to be abandoned and will need different equipment to cope with it, to drill the last 2-300m of it and properly test the reservoir. hence, it is not possible to quantify their drill success other than to say, that it contains a lot of gas! I have read some broker research, which also suggests, that the West Erregulla success increases the likelihood of South Erregulla containing gas as well. I am not sure about this - but we will find out! Strike is now moving the rig to drill West Erregulla 4, before returning to the No.3 well and finish it off - once the new equipment has arrived. Results of No.3 should be with us at about the end of the 1st Quarter 2021.
the real surprise, though, was today´s announcement about Strike planning the development of a 1.4 millt ureaplant near Geraldton, 120 km from their gas find. The production of Urea ( Harnstoff und Ammonium-Nitrat in German ) for the fertilizer industry is a very energy-intensive process - 60-70% of the cost of production is energy. Strike believes, that it could get a 30% free carry into a 1.8 bill US$ urea development, by deliverinbg gas to the project at competitive pricing. Australia currently imports about 1 bill$ p.a. of this fertilizer. STX have secured a 60ha site with port access as well as train access, and are calling for interest in a tender to develope the project. The Western Australia weat-belt alone consumes about 230.000t of urea p.a. STX believe, that production of such a facility could be 25-40% cheaper than imported fertilizer. I could not get hold of the company today but will try again tomorrow to get some more background. The project could add substantial value to Strike - but so could a connection to the large, Western Australian exporters of LNG.
Sheffield - have signed the binding JV agreement with their Chinese partner the other, after receiving FIRB-aaproval just before Christmas. The next trigegr will be the announcement of the update, bankable feasibility study and a refreshment of the financing agrrements with NAIF and Taurus. This will further de-risk the project - but the share price should be higher today than 35ct! I think the market has to digest, that very significant turnover has taken place last year between 7ct and 15ct - those püeople are sitting on very substantial profits have might have to lighten up their positions ( as I had to with my internal rule, to not own more than 5% in a single stock ).
Foran Mining - respected broker Cormark has issued a new research report on FOM…tehs see earnings of around 25ct/share for the stock, once in production, and have a target price of 1,25 Can$ for the stock, at base metal prices below today´s prices. Their NAV10% is 1,47 can$ and increases to above 2$, using 8% and current spot prices!
More on Dacian and Gascoyne tomorrow!
Have a nice evening
WS