Good afternoon
okay, I admit, that I have been a very slow starter this year!
Markets are fighting it out in the moment: value? Commodities? Or Tech, still? For now, at least big tech is loosing the battle, and is underperforming smaller stocks, and cyclicals!
The iron ore price is still around 170 US$/t, supporting some of the largest resources stocks like BHP, RIO, Anglo, Vale or Fortescue. There is considerable action in some of the battery-industry players - especially lithium stocks are racing. But I have no doubt, that there is some exhuberance in the sector - stocks like Vulcan Energy or Rock Tech in Canada appear to carry very lofty valuations - at least for my taste. But there is enough value left in many stocks to make a buck, if many analysts will be proved right, who believe in a strong US-recovery, along a strongly growing Chinese economy. This could drive commodities much higher!
Goldmans believe, that we are at the early stage of a bull market in equities! As you have heard before, tehy are also very bullish commodities! As a resources investor, I am used to everybody beeing very cautious on our sector - hence,. I am a bit vary! But without doubt, 1.9 trill stimulus of the new US government, along with strong programs in Europe and a generally very accomodative central bank policy just about everywhere, will drive demand.
But I have little doubt, that both will drive inflation! And that´s bad for bonds. While nobody can afford much higher rates, this might well impact the world economy, and especially bonds later this year. While it does not feel all that good to be a gold investor this year so far, I can see many reasons to still own gold!!! In the short run, it looks tired, though.
Markets are awaiting Yellens talk tonight, and the inauguration of Biden. As we have seen recently, this might well be accompanied by some upheavel. ´The mere fact, that 25.000 soldiers , who´s task is to ensure a save change of government in the US, should make us think! Trump is gone - but what has he made with this country!!!???
Base metals are up again - nickel has decisively moved through 18.000, and copper just through 8.000 US$/t. Oil also strong - Brent nearly at 56 US$/barrel. Gold is roughly unchanged and
Strike Energy - I have been looking in more detail at the companies plans to produce Urea, a fertilizer, using gas from West Erregulla´s resource. This could be a very positive story for Strike! It uses it´s own gas at competive pricing ( 6 A$??) and could produce Urea at costs of between 20-40% lower than competing, imported urea. Strike believes, that the search for equity partrners is already advanced, and has met with strong interest already. We could see strong announcements over the next 12 month! I can see the company generate 200 or 250 mill A$ in EBITDA p.a. from gas and it´s share of the urea project - and this could lead to higher valuations in therms of EBITDA-multiples than just being a natural resources producer. I would think, that 6-7x EBITDA would not be excessive - potentially giving them a 1.2- 1.7 bill A$ market cap - potentially approx 1$/share. And what is even better: The company is confident, that the competitive tender for partners will give them a 30% carried interest in the JV. All of the above certainly only in case the company will surive until then - without being taken over before! MInd you, I think we would need say 3 -4 years to get to such a valuation. For now, all depends on further drilling success. The new well will start drilling in a few days time, and the results should be known approx 3 month from now. Strike are moving from a pure natural resources/exploration story to an industrial player over the enxt few years, reducing risks on the way! I am holding and will continue to hold a very large stake in my fund"! Great story - but I fear analysts will need a bit of time to come to grips with it!
Panoramic - even while recent development work has been very succesfull, and faster than expected, the company sticks to it´s production target of July 2021. Panoramic is sitting on about 30 mill A$ in cash, and will need another 5-6 mill A$ in capex for various small items over the next few month. And they will certainly need working capital - I´d say 20-30 mill A$. Obviously, the company will spend more than the capex in ongoing fixed costs until first cash is coming into the door - probably by mid-to late August. But I cannot see a problem at all to finance this - be it with banks, project financiers or through a pre-payment from the off-taker Jinchuan. So overall - some more patience is needed - but I guess nothing wrong with waiting for 7-8 month to see a 50% higher share price than the current 17ct! And who knows - there is so much excitement and exhuberance in the market for battery commodities, that firstly, nickel could go higehr above 20.000 US$t this year, and secondly , valuations for nickel producers could rise substantially. Looking at these highly speculative lithium stocks from above, nickel producers could potentially be valued much higher than today.
Tietto - secured a very senior guy from the West African Resources-stable as Chief Operating Officer. he directly managed construction of Sanbrado - obviously, he must have done an excellent job there! Tietto is on track to deliver the PFS in the current Quarter and securing such a strong and experienced person for the construction augurs very well for the PFS!!
Have a nice evening
WS