Chieftain Chatter
Season 4
Episode 154
Rates on hold…for the moment…
It seems the US may have to rethink the Feds targeted “Neutral Rate “ for monetary policy as data continues to support a longer cycle (despite their debt position) and a lag in any recessionary trend.
This in turn has the neutral rate sitting somewhere between 3.5% and 4% versus the estimated target rate of 2.9%, as reflected by current bond yields. Despite the higher bond yields Wisdom Tree Economist Professor Jeremy Siegel remains positive on the outlook for equity markets as recessionary fears continue to ease with corporate America continuing to surprise on the upside. As commented by the Fed Chair. “The economy is not sending any signals that we need to be in a hurry to lower rates. “The strength we are currently seeing in the economy gives us the ability to approach our decisions carefully.” (the brakes are on!)
With earnings season near on complete it’s fair to say they have surprised on the upside albeit with some subdued outlooks for the current quarter with forecasts suggesting around sub 10% EPS growth.
As summarised by Canaccord in a recent “Market Strategy” piece:
In excess of 75% of companies reported earnings above expectations
EPS growth was up 8.8% with Technology and Communication Services leading the charge
Exclude the energy sector and then EPS growth would increase to plus 11%
Xi Jinping Pong had a message to Donald Trump at his final meeting with Joe Biden with The Pong suggesting Beijing wants to be friends but is ready for a fight if necessary. While the Chinese president warned against a “new Cold War,” he reiterated “four red lines” including undermining the Communist Party’s power, pushing for democracy, containing China’s economic rise, and encouraging Taiwan’s independence….. brace yourself for a blue.
Meanwhile to add fuel to the fire so to speak, Trumps new Energy Secretary Chris Wright was the founder of Liberty Energy who earlier this year published a lengthy document titled “Bettering Human Lives”. The guts of the document in the “key takeaways” section give a fairly clear indication of where US energy policy is heading:
Energy is essential to life and the world needs more of it!
The modern world today is powered by and made of hydrocarbons.
Hydrocarbons are essential to improving the wealth, health, and life opportunities for the less energized seven billion people who aspire to be among the world’s lucky one billion.
Hydrocarbons supply more than 80% of global energy and thousands of critical materials and products.
The American Shale Revolution transformed energy markets, energy security, and geopolitics.
Global demand for oil, natural gas, and coal are all at record levels and rising — no energy transition has begun.
Modern alternatives, like solar and wind, provide only a part of electricity demand and do not replace the most critical uses of hydrocarbons. Energy dense, reliable nuclear could be more impactful.
Making energy more expensive or unreliable compromises people, national security, and the environment.
Climate change is a global challenge but is far from the world’s greatest threat to human life.
Zero Energy Poverty by 2050 is a superior goal compared to Net Zero 2050.
Liberty provides fracking services to the oil and gas industry in the US and Wright has publicly claimed fossil fuels are crucial for spreading prosperity and lifting people from poverty and that the threat of global warming, he has said, is exaggerated.
While Wright has warned that subsidies for wind and solar drive up power prices and increase grid instability, he does support alternative energy.
The fundamentals for the Uranium market continue to gain momentum with the Rusky’s temporarily limiting exports of enriched uranium to the US as a tit for tat response to the recent US ban on Russian uranium. Russian enriched uranium accounts for 25% of enriched uranium used in US reactors and they will instead look to supply the BRICS nations There was no detail included as to the length of the ban, however, exceptions under one time licenses have been speculated in the Russian media. The Putin response did not come as a surprise and has fuelled the spot uranium price back up to around US$82.50 per pound. Meanwhile, at COP29 in Baku the US & UK signed an agreement for civil nuclear collaboration which builds on the pledge at COP28 by 31 countries to triple their nuclear capacity by 2050, but…..
Dopey old Australia was invited to join the party but declined! Even though nearly every other developed nation has recognised the only pathway to emission free energy is via nuclear the Marbles lead government cannot see the wood for the trees.
The collaboration agreement has been tailored to assist the development of advanced nuclear reactors and small modular reactors and billions will be committed to R&D to commercialise the new technology.
Quote of the week….
“We need to build dozens of nuclear power plants in the US… & uranium is the trade of the decade & maybe even, the greatest trade ever in the history of the world”
One guess…DT.
On the lighter side….
School of hard rocks…
Our favourite rural stock Elders (ASX:ELD) tapped the market for $246m at $7.85 to fund the acquisition of rival Delta Ag for $475m which will also be funded by an additional $110m loan facility plus issuing $190m worth of escrowed shares to Delta Ag shareholders at $8.52.
Delta Ag has a very complimentary business model to that of Elders providing rural products and advisory services through a network of 68 locations and approximately 40 independent wholesale customers. In FY2024 Delta generated revenue of $835m for an EBITDA of $53m therefore valuing Delta at a hefty 11 times (using adjusted EBIT of $43m pre synergies) and just under 9 times post synergies which they estimate to be around $12m of EBITDA annually. Obviously paid a premium to eliminate a competitor who has a strong footprint of distribution capabilities across NSW, Vic, SA, and WA. With strong representation in Ag tech and precision agriculture the transaction is expected to deliver pro forma FY24 mid-single digit EPS accretion pre synergies and mid-teens EPS accretion post synergies.
Encounter Resources (ASX:ENR) have delivered some knockout holes from the Green prospect which would suggest (from my technical eye) to be an extension of WA Resources (ASX:WA1) Luni deposit.
The results suggest Green hosts a significant enriched high grade niobium that has widths that are prouder than a honeymooners genitals.
The first four follow up RC holes from Green suggest this mineralised system runs for in excess of 3km’s directly along strike from WA1’s 53m tonnes @ 2.1%
116m @ 1.7% Nb2O5 from 52m (ended in mineralisation)
81m @ 1.5% Nb2O5 from 39m
Both holes had significant high grade sections and ENR has now completed a further 30 RC holes at Green into mineralisation, so plenty of assays pending in the short term.
Emeco Holdings (ASX:EHL) released updated guidance which includes operating EBITDA of at least $300m for FY2025 with a similar skew to last financial year of $140m/$160m. They have also forecast a second half Return on Capital invested of around 18% (targeting 20%) with capex expected to be in the $160m to $165m range. Growth capex is expected to be minimal which should deliver strong earnings growth and free cashflow in FY2025. Euroz are suggesting free cash to be in the range of $80m to $100m and with the balance sheet improving to the point where shareholders should be rewarded with a final dividend in FY2025.
Newmont Corporation (ASX:NEM) announced the sale of its Musslewhite project in Ontario to Orla Mining for up to US$850m with the transaction to complete early next year. NEM will receive US$810m upfront and US$40m in contingency payments
As a result, NEM will have surpassed it’s target of delivering more than US$2.9bn in gross proceeds from non-core divestiture with the proceeds focused on strengthening the balance sheet and returning capital to shareholders. NEM have a US$3bn share buyback program in place through to October 2026 and have already repurchased 22.4m shares worth around US$1.1 billion. In addition, they have a debt reduction program in place with the aim of reducing their balance sheet debt to US$8 billion and repaid US$500m in 2024
Hot off the heels after presenting at our investor evening SRG Global (ASX:SRG) locked in $700m of new contracts with existing clients across the Water, Transport, Health, Resources and Dairy sectors in Australia and New Zealand.
The new deals consist of;
A four-year term contract with SA Water to provide Pipeline Delivery Services
A Water Infrastructure contract with the Department of Climate Change, Energy, the Environment and Water (DCCEEW) in NSW. Completes July 2026
A three-year term contract with Fonterra across 7 sites in New Zealand to provide specialist- engineered access services for its dairy operations
On-going bridge maintenance works at the West Gate Bridge in Melbourne and bridge improvement and strengthening works on four bridges in Geelong for the Department of Transport and Planning. Complete mid-2025
Structures contract with Multiplex for the St John of God Hospital facilities in Perth. Completes in 2025
A five-year term contract for maintenance services with South32 at the Worsley Alumina bauxite and alumina refinery operations in the south- west of WA
A five-year term contract for asset integrity services with Glencore at their Murrin Murrin mining operations in the Goldfields region of WA
Minesite infrastructure contract for earthworks and civil construction at the Roy Hill mining operations with HanRoy in WA. Completes mid-2025
An infrastructure contract for the construction of a tailings dam at the Pilgangoora mining operation with Pilbara Minerals in WA. Completes mid-2025
In the current financial year new contract wins now total around $925m plus in excess of $775m wins in FY2024 with tenders & pipeline in the vicinity of $8.5 billion.
Following Indiana Resources (ASX:IDA) being awarded US$90m compensation for the loss of their investment into the Ntaka Hill nickel project in Tanzania by the International Centre for Settlement of Investment Disputes the directors have resolved to pay a special dividend of 5c per share (unfranked) in December. This will equate to a dividend payment totalling A$33m leaving $15.4m in the bank to pursue other opportunities with US$60m received and the balance of US$30m due on or before March 2025 at which time IDA plan to distribute additional capital to shareholders. “The board is delighted to be in the position to deliver a special dividend payment to shareholders in December 2024,” chair Bronwyn Barnes said. “This is a great outcome for the company’s shareholders and reflects a transformational period for the business, with the United Republic of Tanzania having already paid US$60 million of the US$90 million settlement owed to the claimants. “As a result, we report a robust consolidated cash position at 15 November of A$48m. Following the special dividend payment to shareholders in December, totalling approx. A$32.6m, Indiana will have a remaining cash position of approx. A$15.4m.“Importantly, this additional funding will be used to drive an accelerated exploration program in South Australia targeting several of our highly prospective gold targets that have the potential to deliver incredible upside.”
Warriedar Resources(ASX:WA8) have almost doubled their gold resource estimate at the Ricciardo project in WA delivering:
16m tonnes @ 1.8g/t for 947,000 ounces.
Of this resource 467,000 ounces is open pit constrained with 75% in the Measured and Indicated category while the rest is defined as an underground resource.
The greater resource inventory at Golden Range stands at 1.28m ounces with Ricciardo remaining open at depth and along strike
RC drilling at the southern end of the ‘Golden Corridor’ targeting high-grade Resource growth is progressing well with 9 holes completed for 1,472 metres to date and assays pending.
Mine contractor Macmahon Holdings (ASX:MAH) have secured at two year extension at Daisy Milano which is owned by the merged SLR/RED Vault Minerals (ASX:VAU).
The new deal worth around $90m in additional revenue will extend their services to October 2026 providing underground mining services including mine development, production charging and load and haul services utilising the existing fleet..
CEO and Managing Director Michael Finnegan said: “We are delighted to continue working with the team at Daisy Milano and building on our valued relationship with Vault Minerals. We are focussed on continuing to drive safety and performance outcomes for our client.”
Aurora Uranium (1AE) pulled off somewhat of a coup by selling their namesake Uranium project in Organ to US based Eagle Energy Metals Corp who propose to list on a US exchange. Under the terms of the predominantly share based deal 1AE will receive up to US$26m in Eagle paper consisting of:
US$16m upon Eagle completing their listing
US$10m in milestone share payments:
US$5m on conversion of existing resources to M&I status
US$5m on completion of a positive PFS
1AE will receive a US$300 grand option fee for 6 months exclusivity which is extendable to 18 months by forking out another 700 grand US. During this period Eagle have agreed to provide US$500,000 to fund project activities and 1AE will retain a 1% NSR. Should Eagle be successful with their proposed US$7m IPO raise 1AE will hold about 40% of their issued capital.
Who’s shaking the tin…
Greentech Minerals (ASX:GRE) - $3.4m at 8 cents (plus 1:2 option)
Stavely Minerals (ASX:SVY) - $1.5m at 2.4 cents
Askari Metals (ASX:AS2) - $2m at 1.6 cents (plus 1:1 option)
Labyrinth Resources (ASX:LRL) - $19.5m at 21 cents
Akora Resources (ASX:AKO) - $600k at 13 cents
Sayona Mining (ASX:SYA) - $109m at 3.2 cents
Piedmont Lithium (ASX:PLL) - $40m at 16.8¢
Sarama Resources (ASX:SRR) - $2m at 3 cents (plus 1:4 option)
True North Copper (ASX:TNC) - $60m at $0.005
G50 Corp (ASX:G50) - $5.6m at 15 cents
Ionic Rare Earths (ASX:IXR) - $1m at $0.007 (plus 1:2 option)
A meeting with…
Shaun Day Managing Director of Greatland (GGP.LSE)
We have kept an eye on Greatland over the past few years as they always presented at Diggers and it was kind of interesting that a London listed company with a 30% interest in the Havieron discovery could command a market capitalisation of > £1bn at its peak in early 2020. There is no doubt the discovery was a cracker – not many deposits have an initial resource of 52mt @ 2 g/t Au, 0.31% Cu or 2.5 g/t Aueq or 4.2moz Aueq. and the JV with Newcrest Mining good business but after the initial hype the old ‘Lassonde curve’ plus the difficulties of Telfer meant that NCM desire to takeover GGP was dulled. This has all changed with the recent deal for GGP to acquire 100% of Tefler and 70% of Havieron for up to US$475m. This was funded with US$334m in new equity, Newmont to take 20.4% of GGP and a project debt facility of US$750m for Haveiron. Telfer is expected to generate immediate cashflow based on a 15 month mine plan with production of +425koz Aueq at AISC of A$2,200/oz. This is based on treating 21.9mt which includes 9.6mt of ROM stockpiles that Newmont kindly built for them whilst they repaired the tailing dam and didn’t process much. The longer term plan for GGP is to extend life as they see big upside at West Dome Deeps which is being drilled as currently plus the ability with a lower cost structure to convert some of the other exploration targets around. GGP have identified 7 extension opportunities. The big prize is bringing Havieron into production. A feasibility showed at a 2.8mtpa rate at a grade of 2.74 g/t Au and 0.32% Cu this can produce on average 258koz Aueq for at least 15yrs at an AISC of A$1,240/oz. Capex is estimated at $803m and with a resource based of 8.4moz the potential to expand this production rate must be high. The top 300m averages an impressive 9,150 oz per vertical metre!!. There is plenty of good news to come with closure of the acquisition expected in the next couple of weeks. This will be followed by a Telfer resource upgrade in the Mar’Q and a reserve upgrade in June Q and then longer term growth production opportunities. A Havieron updated feasibility study and updated reserve is slated for the end of CY’25 with first gold targeted in the 2nd H of CY’27. It feels like this timetable could compress but obviously the team wants to have control of the assets before making any promises. They plan to list on the ASX by mid CY’25 which makes a lot of sense with potential index inclusions and a new mid-tier gold producer. We came away suitably impressed – looks like a cracking deal which was probably struck when the gold price was well below the current price. We got our timing right with the stock up a lazy 30% since our meeting; unfortunately, our buy order is still sitting on the screen waiting to be filled so we have had a technical success, which as my wife says, doesn’t pay the bills!!