Chieftain Chatter
Season 4
Episode 150
Trump's Again....
Despite a fairly upbeat reporting season in the US, you can’t help but get the feeling valuations are becoming stretched and stocks are ripe for a correction of some significance. With in excess of 25% of companies reporting their quarterly profit results, in excess of 80% have exceeded analyst expectations with the likes of General Motors shooting the lights out and darts manufacturer Philp Morris doing the same suggesting nervousness as investors light up in anticipation of market jitters. With US elections only a week away and Trump keeping his nose just in front who knows how markets may respond, regardless of which way the result falls. While none of us are experts at calling the top of the market, the guru himself Warren Buffet has been reducing Berkshire Hathaway’s equity positions in favour of cash with a record US$189 billion and swelling in their coffers. As we all know Buffet at the ripe old age of 91 has a nose for reducing his exposures at the right time. We are not suggesting a bubble scenario but a healthy correction seems warranted from these current record levels. Bond yields in the US have started trending up again as fears of re-inflation, elevated earnings expectations, a deficit you can’t jump over and the US election hang over the market. US Treasury yields are at their highest level since July with the benchmark 10 year rate hitting 4.25% suggesting the Fed was a touch aggressive with their rate cut profile outlook. A stubbornly resilient economy and re-emerging inflation fears will only be enhanced by a Trump victory with betting markets suggesting it’s leaning his way and a path towards his pro-growth policy.
There’s always a contrarian view and Canaccord’s Michael Welch is of the opinion “Although earnings season and the upcoming U.S. Presidential Election could lead to volatility over the near term, as we discussed last week, the current two-year-old bull market remains below the median in both percent gain and duration, suggesting the upside has further room to run. We continue to believe that with a Fed rate cut cycle in place, a favourable seasonal period, and new highs in the broader indices, now is not the time to fight the Fed or the tape, but it is an opportunity to position for further upside, especially on any weakness”.
The “Nickel on the nose” theme is largely still in play, however it has got to a point where the Indonesians are managing the amount of nickel ore produced to ensure some price stability.
The Indonesian Resources Minister commented “We need to maintain supply and demand balance…If demand is low and supply is abundant, prices will fall.”(well, bowl me over with a feather)
Indonesian nickel smelters are responsible for more than half of world production and are starting to endure a shortage of ore due to government licensing issues, driving up the premium that must be paid to secure the raw material.
French firm Eramet SA, which operates one of Indonesia’s biggest nickel mines, cut its guidance for external ore sales by 29% after the government declined to license a higher amount.
Nickel prices have still struggled to recover meaningfully from their lows earlier in the year as stainless steel demand remains week. So, the great white hope of China stimulus remains the saving grace to give consumption a boost.
Tesla was a classic example of how well corporate America is holding up after reporting a solid quarterly result and adding US$80 plus billion to the value of the company in one trading session.
The result was driven by:
Sales of their Cybertruck which is now turning a profit.
Solid result from the Energy Storage business and
Higher emission credits
Of course, this result sent Elon off on a tangent promising to make Tesla the biggest company in the world and deliver 20-30% earnings growth next year. He also hinted of a potential job for himself if Don wins the Presidency and suggested the pathway for approvals for autonomous vehicles could become quite efficient as a result….you wouldn’t doubt him!
Quote of the week….
“Is Joe Biden still alive” some funny prick.
On the lighter side….
I didn’t want to put this one in but the editor made me…
School of hard rocks…
The postman delivered again (Jeff Quartermaine) with Perseus Mining (ASX:PRU) topping up the coffers with another strong quarterly delivering 121,400 ounces at a US$1,201/oz AISC (1,800Aussie)
They sold 108,900 ounces achieving an average price of US$2,249/oz (Approx. A$3,366) and maintained guidance of 220,000 – 260,000 ounces at US$1,230 (A$1,840) – US$1,330/oz (A$1,990) AISC for the first half of fiscal 2025
In summary another bloody good quarter generating cashflow of US$127m (A$190m) leaving them with cash and bullion balance of US$643m (A$962.5m) with no debt and US$300 million of undrawn debt capacity.
Work continues on the underground at Yaoure and Nyanzaga with final engineering designs continuing what should be 5Mtpa plant with FID still due this year. In addition, no further indication on their plans for their Predictive Discovery (ASX:PDI) holding after emerging with a19.9% stake following the unwinding of those equity swap thingy’s.
TMK Energy (ASX:TMK) concluded they needed to drill additional pilot wells to get a commercial flow rate from their Gurvates XXXV Coal Seam Gas project in downtown Mongolia. So, they raised a few more tugrik’s (Mongolian currency, apparently) and have commenced a 3 well program with the first well being drilled to 480 meters and awaiting completion. Not surprisingly, they intersected the 60 metre coal seam which was consistent with their previous pilot production wells. The second well has already commenced and once the program is concluded they will complete, commission and place them on production immediately. Mr Dougal (8 Handicapper) Ferguson, TMK Energy’s Chief Executive Officer commented: “The TMK Energy team and Major Drilling are doing an excellent job executing the drilling program having drilled the first well safely and on time, we are confidently looking forward to the successful delivery of the 2024 work program. The completion of the current drilling program, together with the implementation of the DTS technology, will be a pivotal moment for the Company and we fully expect that the results from this program will help drive our forward program in 2025.
Austin Engineering (ASX:ANG) held their AGM last week and reconfirmed their FY2025 earnings guidance of:
Revenue circa $350m up about12% from last year and;
EBIT of $50 million up 30% from FY2024.
ANG recently announced they had won in excess of 100 new truck tray orders in Chile in the first quarter of FY2025, worth in the vicinity of $35m and expected to continue.
As a result of the new orders ANG will need to further crank up their manufacturing capabilities and hence, they have deployed resources to the Chilean operation to assist with the ramp up.
The facility is already operating at twice the rate it was last year and should be at full capacity to meet the new demand early in the new calendar year.
The geographical diversity of earnings orchestrated by David Singleton and his team has ensured a robust outlook as the Asia Pacific operations experience a leaner patch.
Strike Energy (ASX:STX) came in with a thumper of a production test result at Erregulla Deep-1 (50/50 Hancock Energy) with one of the highest flowing pressures recorded in the Perth basin.
The well delivered a stabilised flow rate of 53mmscf/d with well head pressure of 5,515psi with flow rates limited by surface equipment with well head pressures indicating the potential to stably flow at substantially higher rates and an absolute open flow of 400-450 mmscfd.
The ultimate size of the resource is yet to be determined but 3D seismic will conducted early next year and an independent reserve certifier will spit out a number, keeping in mind pre-drill estimates were 278BCF with an upside case of 355BCF. STX’s main man , Stuart Nicholls said: “ED-1 has performed exceptionally whilst on test over the last 3-weeks. The test has confirmed that ED-1 is one of the best wells ever drilled in the Perth Basin with extremely high deliverability and low impurity. The well result has significant positive impacts on the West Erregulla field development and the neighbouring prospectivity where Strike has a major 100% owned tenement position.”
Lotus Resources (ASX:LOT) didn’t waste any time tapping the market for $130m following the release of their accelerated re-start study for the old Kayelekera Uranium mine in Malawi. First production can now be achieved 10 months after FID for around $75m which could see first yellow cake by the end of 2025 ramping up to 2.5 million pounds per annum with a life of mine average of 2m lb’s pa at an AISC of US$46 per pound. Now that the funding issue has been put to bed the 160 million short shares should be partially covered and the stock should respond positively in the current heightened uranium market. They’ve locked in contracts for 1.5mlb’s of product for 2026 to 2032 and we would expect to see further contracts locked in at hopefully prices well north of today. Their recent study at the Letlhakane project in Botswana highlighted a 15-year LOM at a 3mlb pa production run-rate but perhaps this project takes a back seat for the moment.
Quarterlies kept on flowing with Genesis Minerals (ASX:GMD) producing 36,000 ounces at an AISC of $2,628 per ounce. GMD achieved gold sales of 36,900 ounces at $3,723 per ounce for the quarter leaving cash n bullion of $177.6m which represents a cash build of A$52.0m (June quarter A$26.9m) before investing A$47.4m in growth and exploration to bring production increases forward. GMD will continue in a capital intensive mode as they build production to their targeted 300,000 ounces per annum and FY2025 guidance remains in the 190,000 to 210,000 ounce range at $2,200 to $2,400/ per ounce. GMD reiterated its fully-funded to deliver its growth plan, and its cash position is much stronger than planned, assisted by a gold price making record highs.
Current growth initiatives include:
Ulysses - Acceleration of underground development, currently 65% ahead of plan, stopping from late 2024 / early 2025
Tower Hill - Planning to submit a Stage 1 Mining Proposal in the December quarter; Open pit and underground transition studies continue (underground not in Reserve)
Hub - GMS open pit mining underway with ore from surface; Extensional drilling and underground studies continue (underground not in Reserve)
Westralia - Re-evaluation as a bulk open pit opportunity using the lean GMS mining model (not in Reserve)
WA have stupidly sat back and watched Luke Creagh turn around Ora Banda Mining’s (ASX:OBM) fortunes without pressing the buy button and subsequently paid the price. OBM produced 24,300 ounces at $2,285 per ounce in the quarter and sold 25,500 ounces with the ramp up at Riverina exceeding expectations with the stopping of high grade material (95,000 tonnes at 5.8g/t Au). Financially, they generated $22m in cash during the Q1 leaving cash and bullion of $48.7m which exceeded all expectations due to better cost management and production.
Guidance remains unchanged for the balance of this financial year at 100,000-110,000 ounces and AISC of $1,975-$2,125/oz. Continued ramp up at Riverina and development of the Sand King Mine along with targeted exploration should set the stage for their target of becoming a 160,000 ounce annual producer.
A mixed bag from Bellevue Gold (ASX:BGL) with production lower than expected at 36,000 ounces at an AISC of $1,892 with AIC’s at $2,694.
The average grade mined was 4.5 g/t which is below expectations and blamed for the production miss leading to BGL being left with net cash of$9m at quarter end. We note that the major debt repayment has yet to occur, with A$50m of its A$150m gross cash balance in a restricted reserve account. The market should take confidence in guidance remaining unchanged as BGL expects to see higher production rates in the second half due to mining higher grade material. Exploration drilling has recommenced and the delineation of additional high-grade zones within Deacon Main suggest that grade overcall vs reserves is possible. Infill drilling results at Deacon Main continue to return impressive results including 10.8m @ 66.8g/t, while infill drilling at Bellevue South returned intersections including 4.5m @ 52.1g/t.
Boss Energy’s (ASX:BOE) production profile is advancing nicely after producing 89,500 pounds for the quarter and the ISL second column is now operational, with column 3 under construction and due to be commissioned before the end of the calendar year.
Importantly, the first shipment of 57,000 pounds reached the facility in Illinois and ticked all the product specification boxes. BOE secured its third offtake agreement with a US power utility with pricing market linked, which combined with its other two contracts sees sales into offtake arrangements of 3.5m pounds between 2024-2033. They have maintained their production guidance at 850,000 pounds of U3O8 despite the impact of adverse weather events which reduced power availability during the quarter. BOE finished the quarter with A$66.5m in cold hard and $178.4m in Uranium inventory and enCore stock.
Who’s shaking the tin…
Belararox (ASX:BRX) - $8m at 25 cents
Chariot Corporation (ASX:CC9)- $1.618m at 20 cents
Botala Energy (ASX:BTE) - $1.87m at 5.6 cents
Patagonia Lithium (ASX:PL3)– $1.343m at 9 cents
Suvo Strategic Minerals (ASX:SUV)– $2m at 4.8 cents
Great Western Exploration (ASX:GTE) - $2.5m at 3.2 cents
Tolu Minerals Limited (ASX:TOK) - $22m at 80 cents
Lotus Resources (ASX:LOT) - $110m at 25 cents
Golden Horse Minerals (ASX:GHM) – IPO $16m at 25 cents
Reward Minerals (ASX:RWD)- $2.3m at 6 cents
Horizon Minerals Limited (ASX:HRZ) - $10m at 4.5 cents
Javellin Minerals (ASX:JAV) - $3m at $0.0025 (plus 1:2 option)
Podium Minerals (ASX:POD) - $3.6m at 3.2 cents (plus 1:3 option)
Lefroy Exploration (ASX:LEX)- $3.3m at 7 cents
QX Resources (ASX:QXR)– $1m at $0.005
Sultan Resources (ASX:SLZ)– $338,834 at 1 cent (to partly fund xmas party)
Black Cat Syndicate (ASX:BC8) - $60m at 52 cents
Atlantic Lithium (ASX:A11) - $9m at 23 cents
A quiet beer with…
Jake Klein Executive Chairman of Evolution Mining (ASX:EVN) and Peter O’Connor Head of IR.
Is there any better place to have a quiet beer than on the deck at Odyssea in City Beach on a mild Perth day (Ocean Beach Hotel!!!)?.. I doubt it and so it came to pass that the boys at Argo’s invited a few gents down to have a chat with Jake prior to his presentation at the WA Mining Club on Thursday. We have always liked Jake – very measured and passionate about the industry and speaks a lot of sense. The inevitable questions about at these record gold prices do you re visit some lower grade deposits and treat them were met with a firm ‘No’ we try to make greater margin and theoretically we should be making like $500m more as a business at these gold prices compared to our budget price. We moved onto to the recent McPhillamy’s decision which in his address at the Mining Club he noted that Australia is becoming increasingly expensive to discover mines and process minerals in Australia and there does need to be legislative process that ensure any red flags at a state or federal level are identified and dealt early and not after companies have spent a shed load of $$ and time . Jake was concerned that some of euphoria in the industry might see some poor M&A deals and a recent of sins of the past repeated when growth for growths sake was the mantra rather than a focus on shareholder returns. His M&A track record is pretty impressive – Cowal and Ernest Henry have been game changers and will continue to generate superior returns and whilst Red Lake hasn’t performed as hoped it does look to be improving. He then talked about the whole energy transition and how this was going to be funded – their Mt Rawdon project (originally mined by Nick Giorgetta and the team at Equigold when sceptics said you can’t make $$ on a 1 g/t Au orebody) could turn into a pumped hydro project and run for 80yrs and produce 20GWh of power but at a cost of $7bn who is going to pay for this ? Either Govt owns or lends $$ and guarantees a minimum price on the power or it doesn’t get built. Unfortunately, I had to depart early for my son’s birthday and my colleague was a bit ‘jet lagged’ after spending 10 days in Portugal with 14 primary school mates decided to cut and run as well. (Very unlike him)