Chieftain Chatter
Season 4
Episode 149
It's that time again....
Earnings season has again kicked off in the US with high expectations of continued EPS growth to illustrate the underlying strength of corporate America. The likes of JP Morgan and Wells Fargo lead the charge with positive results as the banking sector usually sets the trend for the economy and historically sets the tone for the remainder of the reporting season. The market is still pricing in healthy EPS growth for the next couple of years so analysts will be watching guidance closely for any hiccups. One such concern mid last week was micro chip stocks coming under the pump following semi-conductor manufacturer ASML CEO warning “while there continues to be strong developments and upside potential in AI, other market segments are taking longer to recover” and reporting weaker demand and revenue from China which sent their shares sharply lower. ASML’s sales result came in half what was expected and likewise LVMH also reported sales below expectations and cited weaker Asian trade. Conversely, AI market darling Nvidia reached a new all-time high following a strong result from Taiwan Semiconductor which is a major supplier to Nvidia.
Despite all of this the US market continues to hover around all time highs while Goldmans believe these extended valuations are at their highest level in 75 years but are still short term bulls on the S&P500. As quoted by Antipodean Capital “You can see that this indicator has marked major cycle peaks aligning with world bear markets almost faultlessly since 1950. During that time there have been 13 world bear markets, and the GS BullBear Indicator has made a 70+ peak 7 times and the indicator has also heralded world bear markets by peaking between 58-70 another 5 times”. The S&p500 has gained 23% so far this calendar year (60% in two years) not including reinvested dividends as the 24 month bull market deepens Beware the sleeping bear!
China stimulus provided a short term sugar hit for a few selective commodities and share prices but the follow up measures by the Chinese authorities failed to provide the impetus for prices to remain supported.
There is an underlying perception that the measures taken will not be sufficient to correct structural issues that remain in China and begs the question, have they got more room to move to have an impact? Chinese consumers remain cautious as their property market flounders, retail sales & industrial production slump and credit growth slides. Urbanisation driven growth has now lead to a massive property oversupply with prices nosediving and an ageing population is not going to pick up the pieces. As AMP’s Shane Oliver quoted “addressing their structural issues requires aggressive monetary and fiscal stimulus and reforms to clear the property overhang, rebalance the economy towards consumer spending.” Even with the measures announced their targeted 5% GDP growth does not look attainable and you can’t help but think their economy will suffer further and require a significant jolt to kick it into action. The Western world’s anti-China rhetoric is having an impact on their exports as tariffs imposed by the west are becoming real. Given our reliance on Chinese domestic demand the Australian economy has been remarkably resilient compared to previous Chinese downturns which is a reflection of strong bulk commodity prices assisted by reduced investment in new bulk mining projects.
The drum keeps on banging in the nuclear industry with Amazon signing agreements to work with Dominion Energy to explore the development of Small Nuclear Reactors (SMR’s) to further fuel it’s Artificial Intelligence ambitions.
Furthermore, Amazon announced it was part of a $500m financing for a reactor and technology company X-energy to bring on 5GW’s of power for the US by 2039 via SMR’s. As part of the agreement, Amazon and X-energy will provide initial backing for a four-unit, 320-megawatt project with regional utility Energy Northwest in central Washington state. Put simply by Amazon Vice President of Global Data Centres Kevin Miller “We need smart solutions that can help us meet growing energy demands while also addressing climate change.” In addition, the US DOE opened applications for up to US$900m in funding to support the initial domestic deployment of SMR technologies by the private sector.
Quote of the week….
“It’s always almost impossible to call which commodities are going to go up. I remember at the bottom of the last commodity cycle just going well, you know, it’s going to be horses for courses and I wouldn’t buy thermal coal, (but) that probably went up more than anything else.”
Dermot Woods, Precision Funds Management.
On the lighter side….
School of hard rocks…
Encounter Resources (ASX:ENR) continue to stun the market with a flurry of high grade niobium results from the West Arunta but the market doesn’t seem to give a flying rats crack.
The latest result from the Emily prospect adjacent to WA Resources (ASX:WA1) Luni deposit hit:
23m @ 4.2% Nb2O5 from 40m to end of hole
20m @ 2.7% Nb2O5 from 41m
16m @ 2.7% Nb2O5 from 50m
This story is well advanced from when the stock was double the price and now seems well positioned to delineate an economic resource for a standalone project.
Still, plenty of assays pending from drilling at Emily and meanwhile the first aircore drilling at Joyce intersected a carbonatite complex on two 1.6km spaced drill lines.
The first RC holes at Green have been completed indicating a continuation of the niobium mineralisation that extends beyond the depth of the initial aircore program.
Perhaps the market has concluded the world has enough niobium and It’s not such a critical metal after all!
James Bay Minerals (ASX:JBY) hit the headlines with the acquisition of the high-grade Independence gold project in Battle Mountain, Nevada. Given the lithium market remains largely in the dunny JBY have pivoted like many juniors to the more rewarding gold sector.
The Independence project features the Skarn deposit, which has a resource of 796,000 oz at 6.53 g/t gold, with potential for further expansion. Located near Nevada Gold Mines’ Phoenix project and 16 km south of Battle Mountain, the site has shown promising new high-grade discoveries, including a notable hit of 24.4 m at 9.11 g/t gold. The acquisition terms include $2.4 million in shares for an initial 51.54% stake, with the option to acquire the remaining 48.46% over the next two years.
Speaking of switching focus Cygnus Metals (ASX:CY5) have also done an about turn merging with TSX-V listed Doré Copper Mining Corp (TSX:DCMC) and like their stablemate Firefly Minerals (ASX:FFM) picked up a nice high grade copper project in the process.
Doré’s Chibougamau Copper and Gold Project in Quebec hosts a resource of 10.8 million tonnes @ 3.5% Cu equivalent which is copper dominant with the by-products being gold n silver rather than pesky zinc
The deal also includes a 900,000tpa processing facility (the only milling infrastructure within a 250km radius) and a Preliminary Economic Assessment (PEA) restart study on the project which was completed in 2022 reveals:
Pre-Production Capex C$180.6m
10.5 year mine life
Producing 492 Mlbs Cu, 142,000 oz Au
AISC of US$2.24 per pound
Pre-tax NPV8% of C$555 million and 40.1% IRR (using US$4.20 Cu and US$1,854 Au)
CY5 cannot refer to the study as it’s not ASX compliant but a quick glance at the Doré Copper Mining Corp website will reveal all.
Centaurus Metals (ASX:CTM) have been in the wilderness for sometime due to a shizen nickel price so it was pleasing to see some sniffs of optimism from their Boi Novo Copper/Gold project in Brazil.
Two different styles of mineralisation have been identified with 13 of 18 holes returning assays to date and better results included:
Breccia zone style mineralisation returned assays including:
2m at 1.8% Cu from 114m
1.8m at 2.0% Cu from 27m
Disseminated style mineralisation returned:
38m at 0.22% Cu from 69m
18.5m at 0.18% Cu from 113m
10.5m at 0.15% Cu from 70m
The results also include some very low grade gold readings but the results were enough to extend the maiden drill campaign by an additional 2,000m before year end.
Meanwhile CTM are continuing pre-development financing negotiations for their Jaguar Nickel Sulphide Project.
As a result of the Mainetec acquisition Austin Engineering (ASX:ANG) announced first international export of it’s high performance Armadillo dipper bucket to a US based copper producer.
This first international order is on trial which may lead to further orders and for context it weighs around 80-90 tonnes and sells for between US$1.5 to US$2.5m depending on configuration and is lighter than previous models due to the design requiring less steel. It is designed to achieve consistently higher payload and improved fill compared to an equivalent OEM unit thereby offering significant performance and return on investment to the customer. ANG estimate about 430 rope shovels operate across those regions in North and Central/South America and could be ripe for the pickings and provide potential for significant earnings growth if they can penetrate the market.
Size counts….
WA based power infrastructure group GenusPlus (ASX:GNP) has made a number of complementary acquisitions since listing in late 2020 and they have now added Partum Engineering.
Partum provides engineering, design and consulting services specialising in design of distribution/transmission powerlines, electrical distribution systems and substations to private and government clients.
GNP is about 35% of their FY2024 and during 2024 generated $16.2m in revenue for a $4.1m of EBIT and under the terms of the deal GNP will pay:
$12m in cash or shares (vendors discretion)
$4m in contingent payments pending a $4.1m FY2025 EBIT
For full disclosure it’s worth noting MD and CEO David Riches and his bro own 45% of Partum between them and are taking stock as payment which will be voluntarily escrowed for 12 months.
Good results one day, trading halt for capital raise the next, think we’ve heard this song before as Turaco Gold (ASX:TCG) released 7 diamond holes from drilling in the historic Herman Mine pit.
The drilling has confirmed an additional zone of mineralisation parallel to the existing 1.25m ounce resource at Woulo Woulo in Cote D’lvoire including:
15m at 2.1g/t Au from 93m,
12m at 2.19g/t Au from 39m
12m at 1.5g/t Au from 51m
8m at 2.37g/t Au from 84m
8m @ 2.78/t gold from 16m
7m @ 1.22g/t gold from 31m
5m @ 2.45g/t gold from 43m
Their interpretation of the drilling and geophysics suggests this structure continues to the north for 1km while drilling is underway on the Nianemlessa trend with RC drilling testing 10 kilometres of strongly anomalous gold-in-soils which are supported by highly encouraging trench results and extensive artisanal workings. The Diamond drill rig is currently drilling at the high-grade Junction deposit (660,000 @ 2.0g/t Au resource), targeting additional shallow high-grade ounces.
M & A action continues in earnest with Mako Gold Limited (ASX:MKG) and Aurum Resources Limited (ASX:AUE) entering into a friendly takeover deal whereby AUE will acquire 100% of the shares on issue in MKG.
Under the terms of the deal AUE will offer:
1 AUE share for every 25.1 MKG shares, representing an offer price of $0.018 per Mako share
1 AUE share for every 170 MKG Class A Options
1 AUE share for every 248 MKG Class B Options
The resulting exploration and development West African gold business will have $20 million in cash to advance the flagship Napié and Boundiali Projects in northern Côte d'Ivoire
Following the deal MKG shareholders will own 20.5% of the merged entity while AUE shareholders will own the remaining 79.5%
AUE has 6 company-owned drill rigs operating at its Boundiali Project and has ordered two new diamond drill rigs to deploy following completion of the merger.
Who’s shaking the tin…
Kincora Copper (ASX:KCC) – $1.27m at 3.8 cents (plus 1:3 option)
Chilwa Minerals (ASX:CHW) - $6m at 86 cents
Titomic (ASX:TTT) – $25m at 12 cents
MTM Critical Metals (ASX:MTM)– $8m at 6.5 cents
Trigg Minerals (ASX:TMG)– $2.5m at 2.5 cents
Cygnus Metals Limited (ASX:CY5) - $11m at 7.2 cents
Koonenberry Gold Ltd (ASX:KNB) - $3m plus at 1 cent
Turaco Gold Limited (ASX:TCG) - $30m at 31 cents
Sierra Nevada (ASX:SNX) - $2m at 5 cents (plus 1:3 option and an evening with Peter Moore)
Caravel Minerals (ASX:CVV) - $4m at 14.5 cents
Resource Base (ASX:RBX) – $975k at 3 cents
C29 Metals (ASX:C29) – $2.45m at 7.1 cents
Cannindah Resources (ASX:CAE) - $3m at 4 cents (plus 1:2 option)
IperionX (ASX:IPX) - $100m at $3.20
Aumega Metals (ASX:AAM) - $15m at 5.4 cents
A meeting with…
Murray Hill, Managing Director of Elevate Uranium (ASX:EL8)
We hadn’t looked at EL8 for quite a while mainly due to the fact its key project in Marenica in Namibia has a grade of only 93ppm which we thought was too low to make an economic argument for. However, as the quote goes ‘necessity is the mother of invention’ and EL8 realised that to make Marenica work it needed a process to upgrade this resource significantly and hence developed its own in house process called U-pgrade with the aim of removing the non-uranium bearing gangue minerals, resulting in low mass, high grade uranium concentrate. This process is using conventional technology – i.e. screens, trommels, spiral etc with the aim to get rid of the clay and calcite etc. It has been successfully tested at a bench scale with the ore mass reduced to <5% before leaching. It concentrates the uranium and increases the grade by a factor of 50x The process has been patented and in the interim, EL8 acquired the Koppies project in which it has defined a resource of 66mlb at a grade of ~200ppm with some 50% of the resource within 7m of the surface and 95% within 18.5m. Mineralisation is similar to the Marenica ore and hence the U-pgrade process could apply to this. Bench scale testing of Koppies ore is underway and if successful (highly likely) then a demonstration plant will be built and shipped to site in Q1 CY’25. The potential economics are compelling with both a significant reduction in capex and opex should this prove successful. Our back of the envelope numbers suggests an operation to produce 3mlbs pa could be built for ~US$200-250m with operating cost of <US$30/lb using the U-grade process. EL8 is currently in a trading halt raising $25m to push ahead with the demonstration plant etc which, in this market is likely to be well supported and with the stock trading at close to year low’s there appears plenty of room for this to retest its previous highs of $0.75/sh.