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Jul 2003 - PayDirt Conference

SWITCH from ZIM to AQP, Poss Spec Buy PPD

  • We attended the Paydirt Platinum Conference on 14-15 July 2003 in Perth, and about a week before that, a South African lunch with the SA Minister of Mines and SA High Commissioner which elaborated on some of the BEE aspects and changes. We have subdivided this one-off comment into 3 areas, namely, the outlook for commodities such as platinum, palladium and nickel; our observations on presentations by AQP, AXM, CSM, LIM, IGO, PLA, PPD and ZIM; and the SA lunch.
  • The outlook for platinum and palladium is mainly based on an excellent presentation by Johnson Matthey (JM) who advertised their new website (www.platinum.matthey.com) which contains a lot more newsy items etc than it previously used to. The outlook for nickel is based on a mix of the presentations but mainly on CSM’s view of chrome demand in China based on their stainless steel outlook.
  • The presentation by JM focused on what had caused the price fluctuations so far this year (to June 2003), namely Chinese jewellery demand stopping at US$700/oz, funds liquidating their long positions, SARS occurring at the second annual seasonal demand time (there are 3 per year : Chinese New Year, May and October). Then Chinese jewellery demand came back, plus the weakness in the US$ and Bush’s comments about fuel cells prompted the funds to return and drive the price back up to about US$650/oz. Platinum to December 2003 and beyond : (Appears to be in short supply, could rise further).
  • Platinum supply is short. The 50% increases in the total production from South Africa and Zimbabwe by 2007 are needed to achieve a balance between supply and demand, any hiccup and there is a shortage. If demand wants to rise further faster, then it can’t, there is simply not enough.
  • The platinum market has been helped (to remain in balance) by Russian and Swiss sales. However, the Russian selling is believed to have effectively gone. Russian sales were down from 1.3moz in 2001 to 980,000oz in 2002, and the 2002 sales were inflated by repaying a platinum based bank loan. So current sales are believed to be just Norilsk and Far Eastern Russian production. The platinum deficit increased from 370,000oz in 2001 to 570,000oz in 2002. It has been kept in check by the Swiss reducing their stock levels by 1.5moz over the past few years, to result in a major shortage of above-ground stocks of platinum. JM was leaving their forecast of US$590/oz to US$690/oz to the end of 2003, the inference being.

Aug 2003 - DnD - LHG, SGX, JBM

SWITCH from LHG to SGX, and JBM too?

  • I attended Diggers ‘n Dealers in Kalgoorlie last week and visited IGO’s Long Nickel mine afterwards (see separate report). I thought that there were a number of signs that we are entering into a resources boom. Unfortunately time restricts me from elaborating in great detail, and so mainly oneline comments have been made. However, the main conclusions based on the presentations, were : (in alphabetical order)
  • SWITCH : LHG to SGX, and possibly JBM partly to LIM or IGO/MCR.
  • BUY : IGO, OXR
  • SPEC BUY : GRD, KZL, MCR, PNA.
  • ACCUMULATE : LIM, NCM, SGW, One’s to watch :
  • APO : on the old SGW tenements at Laverton
  • AUZ : revitalising the old Blair nickel mine which is actually not flooded to surface.
  • GTR : maybe, looked interesting but I have never visited Tennant Creek.
  • And amongst the Major Offshore Golds (South African and North American) : (that I liked)
  • Gold Fields, Anglogold and Harmony. Commodities :
  • Gold : Both Newmont and Gold Fields were projecting higher prices to US$400/oz and beyond.
  • Zinc : Kagara presented a paper showing that the Zinc market appears to have bottomed. Zinc prices are often regarded as highly leveraged because they are coming off such a low base.

Sep 2003 - ZIM and AQP

ZIM - Still A Spec Buy, AQP - Bid Coming ?

  • This comment contains 3 sections, namely Impala’s comments, Zimplats and Aquarius. Impala’s comments The Implats press release that accompanied their year end results last Thursday (28 August), had a few pointers as to what may happen in the future to AQP and ZIM, namely :
  • There still could be another bid for ZIM or even one for Aquarius Since, according to the press release (available on IMP’s website) Continued rationalisation of structure Implats has continued to rationalise its corporate structure as the opportunity has arisen. The interests in Mimosa and Zimplats have been consolidated for a full year for the first time. Although currently these contributions are small, as Implats’ interest in Zimplats rises and as expansions at both these operations progress, these are expected to become more significant in the future.
  • In the interests of simplifying operational structures and creating clarity for investors, further changes can be expected in the near and medium term, if an analysis of these opportunities proves to be value-enhancing to shareholders.
  • If you had any doubts about ZIM’s actual worth, you only have to read the first paragraph of this section, namely : (non italics are our inserted comments) Although currently these contributions are small, as Implats’ interest in Zimplats rises and as expansions at both these operations progress (Mimosa and Zimplats), these are expected to become more significant in the future. (note : AQP has the other 50% of Mimosa)

Nov 2003 - MIC - Prod Forecast

MIC - Production Forecast to 300kozpa at AGM Gold – US$425/oz next ?

  • This comment is based mainly on our attendance at Michelago’s AGM at 3.30pm on 19 Nov 2003 in Sydney, and an update on our viewpoint of the gold price.
  • Michelago (MIC) : Rated as a Spec Buy
  • MIC gave a calendar year production forecast in its 2003 AGM presentation, in accordance with its target of attaining gold production of 300,000ozpa within the coming 5 years or so, as shown below :
  • In response to questions on cash costs, MIC stated that they expected BioGold’s production costs in 2004 to be about US$220/oz to US$230/oz, being based on purchasing concentrates from producers at 55% to 75% of the gold price (depending on what state and type the concentrate is sourced from).
  • The driver for MIC’s share price is probably the signing of the SFJV’s. At this stage, the exploration JV’s are expected to be signed before Christmas, and the production such as BioGold after Grant Thornton has completed its due diligence by the end of 2003. Biogold could be approved in March (after the Chinese New Year and the Summer festivals) or May 2004, and any subsequent required financing in JQ04, which has resulted in the production estimate shown in the above figure from about mid-2004 for an attributable 51%. It should be noted that MIC does not have to have the SFJV signed in order to start exploration, from what we can see, a number of other Chinese exposed gold companies are not waiting.

Jan 2004 - Year End Review

  • This comment is based on what had happened by 31 December 2003 to the share prices of the 17 companies on which we completed 20 reports during 2003, followed by some general observations on the progress being made by those companies. The following table shows the appreciations made by each company’s share from the date of the report to 31 December 2003.
Company ASX Code Report Report Size Share Price Share Price Appreciation


Date
A$ 31-Dec-03 %
Abelle Ltd ABX 9-Sep 12 1.59 1.8 13%
Aquarius Platinum AQP 9-May 12 5.35 7.9 48%
Consolidated Min CSM 7-Feb 8 0.62 0.95 53%
Exco Resources EXS 18-Nov 4 0.225 0.205 -9%
Goldstar Resources GDR 30-Oct 6 0.25 0.31 24%
Heritage Gold (NZ) HTM 17-Jun 6 0.026 0.045 73%
Independence Gold IGO 10-Feb 8 0.355 1.3 266%
Independence Gold IGO 25-Mar 4 0.32 1.3 306%
Independence Gold IGO 11-Aug 2 0.46 1.3 183%
Kanowna Lights KLS 7-Feb 4 0.027 0.024 -11%
LionOre Mining LIM 9-Jul 12 6.19 8.15 32%
Lodestone (IPO) LOD 23-Jan 4 0.2 0.11 -45%
Michelago Ltd MIC 31-Jul 6 0.038 0.13 242%
Michelago Ltd MIC 3-Oct 8 0.135 0.13 -4%
Minotaur Resources MNR 15-Oct 6 0.91 1.25 37%
Pan Australian PNA 25-Jul 6 0.073 0.19 160%
Perth Mint Gold ZAUWBA 19-Jun 2 5.41 5.59 3%
Red Metal (IPO) RDM 24-Oct 6 0.2 0.32 60%
Terramin Aust (IPO) TZN 21-Nov 4 0.2 0.21 5%
Zimplats Ltd ZIM 7-Apr 8 2.8 3.95 41%
  • The highest appreciation was achieved by Independence Gold at just over 300%, followed by Michelago Ltd, and then Pan Australian. The two disappointments were Lodestone which failed to attain its anticipated intersections, and Kanowna Lights which dropped its intended project. Exco is trading thinly and had already rebounded to A$0.22 on 2 January 2004. Terramin’s report was dated 21 November, but only listed on 23 December and has hence barely traded.
  • For 2004, we initially have 4 reports in progress which are expected to be completed in the approximate order of Agincourt, Pan Palladium, Gallery Gold and Albidon (a new IPO). We visited Agincourt’s Wiluna mine in mid-November 2003, followed by Pan Palladium in South Africa, Gallery Gold in Botswana, and Albidon in Zambia over the end of November / early December 2003.

Jan 2006 - Year End & China

  • The main potential restriction to China’s growth appears to be insufficient raw materials in the world (based on what I could see). China is currently in 10-year Growth Phase 1 to 2010, when it is expected to accelerate into Phase 2 to 2020 (based on a presentation at China Mining 2004).
  • The top 3 performers by company have been Independence (IGO) up 2,364%, followed by Kingsgate at 1,573% and then Consolidated Minerals up 906% (based on share price appreciations since ERA’s first report less dividends).
  • I remain amazed that there is still a view that “the sky is going to fall” or “this cannot be a super-cycle” or “commodity prices have to fall if not in 2006, then definately in 2007 and if not in 2007, then it has to be 2008”, or “commodity prices are overdue for a correction because they should have turned down at the end of 2004 according to the historic world IP growth curve” or “China has to grind to a halt due to fundamental economic theory” – to anyone who makes these remarks you should ask “when was the last time you visited China ?”. Quite often the replies are either : “never; a long time ago; or I don’t need to go there because it is obvious what has to happen.” To those that haven’t gone, do yourself a favour, take a week off and go (Singapore Airlines return from Sydney is about A$1200) and make your own opinion based on first hand observations, otherwise much greater monies can easily be lost through taking the wrong stance.
  • It has been commented that nickel prices must fall because the nickel laterites have to be developed in order to meet demand, with a new nickel laterite mine required every year to meet demand expectations. But each 40,000tpa to 50,000tpa nickel laterite mine costs at least US$2bn to construct over 3 years or so, and then take up to 8 years to reach full capacity and require maintenance and sustaining capex of US$100m per year. That level of capex requires minimum levels of nickel prices to be viable, and Minara are still not quoting their cash costs.
  • This belief that commodity prices have to fall is the only rationale I can apply to the relatively weak performance of Australian nickel producers such as Mincor and Sally Malay during 2005 as shown in Table 1, which we believe are both capable of exceeding A$1 per share, with Independence capable of being well over $2 per share (a 70% appreciation on $1.18 = A$2.01). Both Consolidated Minerals (CSM) and Titan Resources (TIR) also do not appear to yet be receiving any consideration for their potential nickel production, but that could change over the coming year to December 2006.

Aug 2006 - DnD - IGO

  • McLeay grades are higher than expected (7%Ni in development, 20%Ni in face)
  • McLeay South (beyond the Goldfields extension) may extend SE parallel to (and East of) East Alpha under Lake Lefroy (if it does, it has the potential to significantly enhance IGO’s value).
  • Anglogold stated they are starting a PFS in 07 & then BFS in 08 on Tropicana.
  • This comment is in response to a number of queries we have received in which we rate IGO as an ACCUMULATE (Hold, Buy on weakness), based on our previous reports, a group visit to the mine (mainly McLeay at IGO’s Lightning Nickel during the recent Diggers and Dealers Conference in early August 2006, and the presentation made at Diggers by Anglogold in favour of Tropicana).
  • McLeay is the extension of the Gibb-Victor channel, beyond Victor South. At this stage it is not clear whether it is faulted south of the Goldfields extension (based on the TEM plate boundary, whether it is a faulted extension of Silver Lake (Lunnon, seems too far) or if it is a separate channel that extends southeast parallel to East Alpha (and outside of CSM Ni) as shown in Figures 1a and 1b.

Dec 2006 - Sino Gold Limited

Sino Gold Limited (SGX)

  • The Jinfeng plant is HUGE, SGX appear to have a ~US$250m plant at the cost of ~US$90m to US$95m.
  • Initial grades are higher than we expected at Jinfeng with the first bench showing a clump of ~14g/t values, and inferred higher reconciliations, resulting in expected initial Year 1 open-cut grades ~20% higher at 6 to 7g/t.
  • Just how much gold Jinfeng can produce annually is open to debate. Rated as 180,000ozpa based on 1.2mtpa, peak production appears to have the potential to be ~300,000ozpa to 400,000ozpa or so. (It was not surprising post the visit that Gold Fields established a new 50/50 JV with SGX targeting potential 5moz orebodies with 500,000ozpa production, & increased their holding in SGX to 17.4%).
  • This comment was written following an analysts’ trip to Jinfeng ahead of the China Mining Conference in Beijing in November 2006, at which SGX received the Mine Development of the Year Award for the Jinfeng Gold Project. The trip highlighted the size of the Jinfeng plant, its potential capacity, early indications of higher grades than expected and included a presentation on SGX’s exploration activities in China.
  • The Ausenco (AAX) built Jinfeng plant as shown in Figures 1a and 1b is HUGE with the main section about 0.5km long and the whole plant at least 800m long. It looks like it should easily achieve the usual 20% (for Australian built plants) above rated capacity, and that is before the 50% expansion. (The 20% above normal usually results from the fact that a 15% design contingency is built into the size components in Australian plants, however a 25% design contingency has been used at Jinfeng (based on accepted practice in the Asian region)). While the 50% expansion (at a possible cost of US$15m from cashflow) appears likely to occur, numerous variations are to be tried first to see what the plant can achieve before it is expanded.

Jan 2007 - Year End & China

  • The construction pace of growth in China appears to be accelerating and is involving bridge building engineering feats and extensive spending on railways & rail networks with US$190bn allocated up to 2010 and more to 2020.
  • It didn’t matter where you went in China, literally everywhere was in major construction in villages, towns, cities, plus new railways & new freeways etc.
  • The main base metal of interest still appears to be nickel (based on INCO and Falconbridge both taken over, & Jinchuan’s offtakes with a number of ASX listeds).
  • I re-iterate a comment I made in our last annual review dated 3 January 2006, namely to anyone that still insists that “commodity prices have to fall”, or “China’s growth has to come to an end”...you should ask them “when was the last time you visited China?”.
  • This comment is based on ERA’s (my) last visit to the China Mining (November) 2006 Conference in Beijing, in which I visiting Golden Tiger’s operations in Western Guangxi and SGX’s Jinfeng operations in Southern Guizhou during the week before the conference, attended the conference and saw a number of blue skies over Beijing including an almost clear sky flight from Guiyang to Beijing, and then visited Shanghai and some friends studying Mandarin at a university in Hangzhou.
  • The disparity that we wrote about in the performance of Australian nickel companies during 2005 and our comment that “we believe both (Mincor and Sally Malay) are capable of exceeding A$1 per share, with Independence capable of being well over $2 per share”, was an understatement as during 2006, both MCR and SMY exceeded and are still more than $2/share, with Independence rising to over $5/share, before dropping back.
  • Both Inco and Falconbridge have been taken over, so comparisons with them cannot be made any more – surprisingly no one has focused on why they were taken over as in why not aluminium, copper or zinc companies. However, Table 1 below reflects a “what if” nickel stayed at US$15/lb (US$33,000/t) since current share prices appear to be indicative of nickel prices of ~US$

Aug 2007 - DnD - SMY, AVO, CSM

Buy SMY & AVO; CSM worth >$5

  • If we had to pick two stocks, they would be our last two reports : SMY & Avoca
  • Preferred buying order for the nickels: 1. Sally Malay, 2. Indep Group, 3. Mincor
  • IGO could produce 1,000tNi above expected or ~10,000tNi in 07/08. Tropicana expect > 20moz (range is 20moz to 50moz over the 350km strike length).
  • MCR’s 50% increase to 900,000tpa treated by 08/09 appears to be >1.0mtpa.
  • CSM’s Gillet worth well above the ~$4m in the IGR (A$70m to A$95m?), Beta Hunt now improving with Vent #, New Ni concentrator at Widgie appears likely.
  • This Comment started out based on the visits we (ERA) took during this years’ Diggers and Dealers August 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel and gold favourites.
  • Our (ERA) current favourites are :
  • Sally Malay : Recent August 1 report, rose ~10% on report release, plenty of upside potential, Deacon : HUGE, maiden dividend, debt-free, hedging basically gone (actually lost $112m in hedging in 06/07 & still made ~$90m NPAT (cashflow would be even higher)).
  • Avoca : Recent August 2 report, rose ~5% on report release, market unfazed by negligible production this year, new Wills supergene discovery, potential new Chalice discovery.
  • Independence Group : Steady production from Long/Victor at probably closer to 10,000tpa Ni (quoted as 9,000tNi for conservatism). Tropicana 20moz to 50moz, other new gold areas.
  • Mincor : Significant increase in production coming and plenty of exploration upside. Thinks it should recoup its Otter Juan acquisition within one year with ~$6m cashflow just for July 07.
  • As for CSM : Wait until the last possible day before accepting, the ideal scenario is that neither offers win as in ERA’s opinion, it should not have embarked on this course of action and could have traded closer to $5/share (due to the manganese market upside). If Pallinghurst looks likely to win, then SELL : if TTY looks likely to win, then BUY.
  • There were numerous visits to choose from at Diggers, from which we visited IGO’s Long/Victor Mine; MCR’s Otter Juan, Carnilya & Miitel; and CSM’s new Gillet discovery and new open-cut mining at Armstrong & 132N. Our comment on IGO includes the presentations made by IGO and AGG mainly on Tropicana at the conference, where estimates ranged up to 20moz and beyond.

Jan 2008 - Year End & China

  • 2008 appears to be heading for a year of M & A activity, especially of the junior Australian metal producers, with possible premiums of 35% to 40% being paid.
  • The nickel sulphide producers could be prominent in the activity, and our conceptual order of value is Albidon, Sally Malay, Mincor & then Independence
  • While China would love to have lower metal prices, the developing countries are in synchronised growth mode. One of the metals to watch may be Cobalt (now ~US$45/lb) which could focus the market on ALB, SMY, MRE and VCN.
  • This comment is based on ERA’s (my) last visit to the China Mining (November) 2007 Conference in Beijing, in which I visiting Golden Tiger’s operations in Guangxi during the week before the conference, attended the conference and saw a number of blue skies over Beijing (after winds had blown away the smoke from burning-off the rice fields). It was actually even possibly to see the distant mountains (~50km away) at the end of some of the streets.
  • China realises what its metal requirements are and hence would love to have lower metal prices, by any means possible (even if it means taking over [or a blocking stake in] RIO by a consortium of companies). The mid-2008 stainless steel sabre-rattling can only be done so many times before the market becomes immune to it. It was commented at the conference that this is the first time that the developing countries are in synchronised growth mode, following in China’s footsteps. The US was expected to stumble and possibly still have a psychological impact on the market, but the reality was that it appeared unlikely to reduce the pace of world growth by more than 0.5%.
  • So, following on from INCO and Falconbridge, LionOre has gone (to Norilsk), Xstrata has acquired ~43% of Jubilee, and in a pincer movement Zinifex has offered $1/share for Allegiance (AGM). AGM closed at A$1.07 on 31 December 2007, inferring that the market is looking for more. At the recent China Mining Conference, AGM stated that it now had 3 stopes on line, was looking at possibly a 50% expansion, had a number of regional exploration targets, was on-track for MQ08 production, and had some higher grade nickel sulphide ore as shown in the presentation.

Sep 2008 - DnD - SLR, NGF, IGO

Silver Lake (SLR), Norton Goldfields (NGF) & Independence (IGO)

  • Post Diggers last year we wrote “This Comment started out based on the visits we (ERA) took during the Diggers n Dealers Aug 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel & gold favourites”. That comment applies just as easily for 2008 too, except that this time around the “money that did not exist” has mainly been in different forms of sophisticated shorting.
  • It is often commented that the market likes a story and hates reality, that’s why the old model of the share price rising when a company starts production has gone out of the window. Now companies rise before production and fall when they go into production as reality hits, unless they are still in “story” mode. Our current Australian based and operated favourites are all appear to be debt free, generating cash with cash in the bank, and significant upside potential being for nickel : Panoramic (PAN @ $1.45); in gold : Silver Lake (SLR @ $0.16) and in other (iron ore) : Territory (TTY @ $0.52). – And all of them have PERs in the 2 to 4 x area. (PAN : 194m x $1.45 = $281m, less $130m cash = $151m/$73m = 2.1 x; SLR : 153m x $0.16 = $24m less ~$3m = $21m/$12m = 1.8 x; TTY : 265m x $0.52 = $138m less $1m (check financials when reported) = $137m/$45m = 3.0 x) Our (ERA) current favourites are :
  • Panoramic : Recent August 2008 report, and stacks of upside both at Lanfranchi (due to Deacon) and at Kimberley Nickel due to Savannah. PAN recently reported some more of those thick high grade (double current grade) intersections, indicating further upside potential. Our report had a life of 10 to 15 years at ~15,000tpa - 20,000tpaNi (whereas it could be 15 to 20 years at up to 25,000tpa [which more resembles a portfolio stock]). The NPAT is about $70m per year at prices of A$9.47/lb Ni (US$9/lb and an 0.95US$ exchange rate, currently the nickel price at US$8.3/lb and a 0.81US$ exchange rate equates to 10.25A$/lbNi)
  • Silver Lake : We accept that the share price has fallen to as low as 15c, but how many gold mines are debt-free, treat at ~14g/t (July 2008), encounter 10m @ 6kg/t (6,000g/t in a development drive), have a development face averaging 57g/t, have the capability to double their mill size and could exceed our forecasts of 70,000ozpa by possibly up to 50% more in their first year, potentially generating profits of $1m to $2m per month.
  • Territory : Yes we accept that it lost heaps ~$50m or more last year investing in Monarch etc etc. But at Diggers it was selling its lump at ~A$110/t, fines at A$90/t, say A$100/t on a 50/50 basis. Costs are A$70/t falling to A$60/t (and targeted to go lower), say a margin of A$35/t, which at 2mtpa = $70m less tax = ~$50m NPAT less exploration etc = $40m (and revenues may be US$/t and not A$/t, so the figures could be higher).
  • At Diggers, we also visited Norton Goldfields (NGF) and Independence (IGOs) operations, viz :
  • Norton Goldfields : Being overlooked because of the Paddington history by Pancon. We were surprised by the upside potential seen on the visit (ahead of Diggers) with the old Padd I & II pits to be used as tailings storage (20 years at ~3.5mtpa).
  • Independence Group : Remains a favourite, despite its share price collapse to under A$3/share. Long-Victor and Tropicana could continue as low cost operations until the “cows come home”.

Oct 2008 - Panoramic Res

BUY Panoramic (PAN)

  • Our last commissioned report was on Panoramic, rating it a BUY at $2.37 on 1 August 2008, and we again recommended it as a BUY in our post Diggers Comment at A$1.45 on 11 September and it has continued to fall along with most of the resource stocks currently to ~A$1.12 per share, and given the state of the market may fall further from 7 October 2008.
  • However, we continue to rate PAN as a BUY.......................WHY ?, well :
  • At A$1.12 per share, PAN appears to have a fully franked dividend yield of 10% (or in other words about double what you get for money on deposit in an Australian bank [and bank rates are expected to fall]). The current 7.5%pa (less the bank fees, which for this example we have ignored) becomes an equivalent 5.25%pa after paying 30% tax (placing it on the same comparable basis as a fully franked yield).
  • If PAN’s share price falls further from here ($1.12), then you should get an even higher dividend yield.
  • That dividend yield is based on PAN paying 11Ac to 12Ac this year to June 2009, and according to our estimates, it should be achievable, even if nickel falls to US$6/lb. PAN has paid 12c per year for the past 2 years (the first 12c was a maiden final for the year to June 2007, and in the year to June 2008 PAN paid a 7c interim followed by a 5c final). Last years’ 12c was a 43% payout ratio based on earnings of 28.4c (DH07 : $24.4m, 13.7c eps: JH08 : $29.9M, 15.5c eps).
  • Our August 2008 estimate for the year to June 2009 was an eps of 39c, based on US$9/lbNi and a US95c exchange rate or A$9.47/lbNi, whereas at current prices of nickel at US$6.87/lbNi and the A$ at 77.5USc, PAN is receiving A$8.86/lbNi, which results in an eps of 39.6c in 08/09 and 43.1c in 09/10, and 40c at a 40% payout ratio = 16c (and an NPV of $2.45).
  • If the nickel price fell to US$6/lb (as some major brokers believe), and assuming an unchanged exchange rate of 77.5USc, then PAN’s 08/09 eps becomes 32c or at a ~40% payout possibly ~ 12c to 13c in dividends.

Feb 2009 - Year End & China

  • Well it was a nice rally over the Christmas/New Year period, it seems hard to believe that Albidon quadrupled to 32c or Panoramic touched $1.42/share, along with many other price rises, before the doom and gloom settled back in, on plenty of negative media releases.
  • Perhaps we should change the western world years to conform to the Chinese ones, after all China has basically been on holiday up until now. The Year of the Ox started on 26 Jan 2009, and China was still on holiday for the week after that. Since China has such a significant impact on world metals’ demand and even if it is only 7% GDP growth on 2008, it is still growth (and in fact about 3 or 4 years’ ago, 7%pa was in fact the target). [Of course, the actual growth rate may still be up to 1.5% higher than an official stated 7% growth rate].
  • We have actually seen a number of positive releases relating to China, along the lines of metal restocking immediately ahead of Chinese New Year, rising spot iron ore prices (its almost doubled from the US$40/t lows of early Nov 08 to about US$75 to US$80/t), Jinchuan forecasting an increase to 125,000t of nickel production (from ~ 110,000t) in 2009, etc. – but virtually none of that appears to have been reported in the Australian press.
  • We possibly were too optimistic with our scenario expectation of the early stages of a commodity market recovery occurring in March/April 2009 (probably led by nickel), but it is still very early in the 2009 year to push that recovery expectation out to 2010, especially as China has not really started yet.
  • At the China Mining Conference in Beijing in November 2008, we attended the commodity sessions, for which the general main points were that;
  • China needs the grade and the orebodies. It is not really bothered about the next 3 years, more how to fill in the growth demand gap from years 20 to 40, and hence wants to control orebodies outside of China to achieve that goal (either by funding companies or controlling them – acquisitions to be done at bargained prices).
  • It also thought that it was criminal to hold countries to ransom (like BHP and RIO) on the iron ore prices, companies can make reasonable profits, not excessive profits.

Aug 2009 - DnD - SLR

Buy Silver Lake Resources (SLR)

  • There were a number of available mine site visits before, during and after this years’ Diggers (which was apparently the highest attended so far). Many people remarked that they were surprised by the number of local and large international fund managers at this years’ Diggers. The mood was certainly more upbeat, possibly due to the higher share and commodity prices compared to last years’ approaching cliff to fall from.
  • We were part of a group that visited Silver Lake’s Daisy Milano during the conference (during most of Tuesday – the 2nd day). This review is based on that visit and SLR’s presentation at Diggers.
  • Silver Lake (SLR) - Buy at A$0.645
  • Silver Lake continues to move from strength to strength as SLR’s understanding of the Daisy Milano orebody and goldfield continues to evolve. The SLR trip consisted of an open-cut followed

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