Chieftain Chatter
Season 4
Episode 151
Might as well, Trump....
The bookies are suggesting a Trump victory while the polls are suggesting a tight race while markets seem to banging the “Trump Trade” drum. Despite some nervousness markets are still flirting with all-time highs while the geopolitical hedge remains intact with Gold and bitcoin leading the charge. Although the election is too close to call the actual implementation of the victor’s policy may be difficult as the power sits with Congress. The House of Reps and Senate are precariously balanced with the Reublicans holding a slender lead 222 to 213 while the Democrat controlled Senate is even tighter (51/49). Looking at the various scenarios the outlook for markets remains mixed regardless of who wins office as policy implementation will be problematic without controlling Congress. Although he’s not universally liked he’s perhaps seen as a stronger leader with a focus on the economy, whereas Harris is liked but her left sided bias may see her fall short….It’s odd to think the most liked leader fails but this is the US! Anyway, policy promises are just that until implemented and Trumps “market friendly” tax cuts and tariff increases may stumble even if he assumes office:
Harris victory with control of the House and Senate is expected to see a higher tax environment targeted towards the big end of town.
Trump victory with a Democratic controlled Congress will make policy implementation difficult.
Hung result that takes weeks to resolve and potential unrest amongst the natives!
The above scenarios are all negative for what perhaps a “fully priced” market and no matter the outcome markets will ultimately focus on economic fundamentals of inflation and interest rates which will dictate the direction of markets rather than election results.
US third quarter GDP was forecast to rise 3% but came in at 2.8% seasonally adjusted despite personal consumption expenditure rising 3.7%. The result still reflects an economy a long way from recession with payroll data reporting private job creation jumping to its highest level in a year. Payrolls lifted 233,000 in October which was well above expectations of a 111,000 rise and well above Septembers 159,000 gain. The gold price is still suggesting investors are positioning themselves for a heightened level of uncertainty ahead of the election result and uncertain geopolitical outcomes. A big week for US earnings with the “Mega Tech’s” reporting a mixed bag of results which was kicked off with Google (Alphabet) exceeding analyst expectations with strong revenue growth. Microsoft, Meta and Apple all reported softer than expect China sales numbers and given most of these names have had such a monumental run on the back of the AI boom any news with a slight negative bias was all that was required for some profiteering. As some spivvy US broker quoted “Halloween is bringing tricks, not treats to many investors…the market’s mindset seems to be switching from one where anything AI-related was a reason for enthusiasm towards one where investors are looking for some returns on their massive spending.” On the flipside both Amazon and Intel rallied on the back of optimistic forecasts with the once market darling Intel executing it’s rebuild plan and surprising analysts with an optimistic profit projection.
These numbers seem to flow off the tongue but Boeing raised US$21 billion last week in one of the largest public company capital raisings ever seen in an effort to avert a credit rating downgrade to junk status.
Boeing sold 112.5 million common shares for $143 each which was a 7.7% discount to their closing price of 155 bux. They also issued $5 billion in mandatory convertible preferred stock that offered a dividend of 6% and is set to convert into equity no later than 2027, with a conversion premium of about 20%. Boeing stock has plummeted more than 40% this year, the second worst performance amongst the Dow stocks. The infusion of funds clears one of new Chief Executive Officer Kelly Ortberg’s most urgent tasks amid a period of financial turmoil for the plane maker after their balance sheet was already strained by the pandemic, and before that two fatal jet crashes involving it’s workhorse 737 Max model. Now there’s a labour strike, in it’s seventh week, that’s crippling manufacturing of the jetliner. Remember when buybacks were all the rage in the US well, this issue of shares takes their capital structure back to where it was before they spent $43 billion on share buybacks between 2013 to 2019.
As evidenced by the chart below global coal consumption as a fuel is only heading in one direction despite efforts to transition power sources away from it.
26% of the globes total energy consumption still comes from coal with production peaking in 2023 and Asia-Pacific (Aust, China India, Indonesia) accounting for 80% of production.
C’mon Australia get with the uranium program!
Quote of the week….
“I continue to be concerned about the level of spending and deficits in the United States. Unless we have policy change and get our spending and our debt under control, ultimately that’s going to have a bigger impact on long term rates than I think people are anticipating today”
David Solomon CEO, Goldmans.
On the lighter side….
School of hard rocks…
In a further effort to improve their debt laden balance sheet Mineral Resources Limited (ASX:MIN) have offloaded their Perth Basin gas assets for $1.13billion to Hancock Prospecting.
Hancock will shell out $804m upfront followed by an additional $327m conditional upon satisfying resource thresholds and classifications. Importantly, for me the look through value for Strike Energy (STX) shareholders $804 million for 107.6 MMboe is at $7.50/boe, where STX has 795 PJe when Erregulla Deeps is included , which is about 130 MMboe. At the $7.50/boe, STX look-through is approx. A$980 million ($0.34/sh) according to Euroz Analyst. Which begs the question why didn’t she just make a full bid for STX which clearly has the largest resource base in the Perth Basin plus existing (albeit small) production at Waylering? Simple answer is probably access to uncontracted gas and a strong mutually beneficial relationship with Chris Ellison who is currently under the pump…to say the least.
Firefly Metals (ASX:FFM) have upgraded their resource at the Green Bay project in New Foundland by 40% to:
59mt’s @ 1.7% Cu, 0.3g/t Au & 2.8g/t Ag resulting in;
1mt contained Cu, 547,000oz’s Au and 5.4moz’s Ag.
The new resource has incorporated 40,000 metres of underground drilling and 40% of the resource is in measured and indicated category. The drilling has extended 750 metres down plunge (illustrated below) and is expected to extend mineralisation plus they will also target the potential parallel lodes. This should all result in further upgrades when the resource is next upgraded mid next year and again at the end of calendar 2025. Argonaut’s conservative back of envelope numbers suggest a higher tonnage, lower grade diluted inventory (1.50% Cu, 0.30g/t Au, 2.5g/t Ag) with an 18-year, 40,000tpa copper producer with a (net by-product) AISC of US$2.36/lb Cu. Outstanding result to date and FFM will continue to aggressively drill with four underground rigs turning and a healthy cash balance having raised $73m plus the potential sale of the high grade Pickle Crow gold project in Ontario.
Develop Global (ASX:DVP) produced a strong quarterly reporting a nearly 20% increase in revenue to $52.7m, putting them on track to achieve their circa $200m revenue guidance. However, a sharp increase in staff costs ($15m to $23m) meant operating free cashflow of just $2.4m. Having secured their $100m debt facility and 5 year offtake with Trafigura to develop Woodlawn it’s full steam ahead and GR Engineering have been awarded the upgrade and commissioning of the processing facility with works already 30% complete. This ultimately triggered a milestone payment to the vendor to the tune of 20 million bux which they took half cash and half shares at $2.08. They also indicated the Mount Marion underground contract is expected to complete in late December 2024 and an undisclosed early termination payment will be triggered.
DVP ended the quarter with $30m in the bank ($10m lighter now following the milestone payment) however, given the financing facility and future cashflow they are sitting pretty and may still offload a minority interest in Woodlawn to replenish the coffers.
Pilbara Minerals (ASX:PLS) produced 220,000 tonnes of spodumene concentrate and shipped 215,000 tonnes for the quarter and with a focus on cost reduction operating costs fell to $616 per tonne FOB.PLS realised spodumene price of about $1,040 (SC 5.3 basis) which resulted in revenue for the quarter of $210m. In the current environment PLS have reduced production guidance for FY 2025 from 800,000-840,000 tonnes to 700,000-740,000 tonnes FOB with cost guidance reducing to $620-$640 from $650-$700 per tonne and capex guidance has been lowered from $615m-685m to A$565-610m potentially resulting in cash flow improvements of about $200m. Cash at the end of the quarter was still a healthy $1.4 billion although down $274m from the previous quarter due to capex growth. Cash margin from operations (defined as receipts from customers less payments for operating costs) was positive at $49m
Paladin Energy’s (ASX:PDN) quarterly production at Langer Heinrich missed the mark delivering 640,000 pounds when more like 900,000 was expected. A combination of factors were to blame including:
Grade – averaged 422ppm vs 520ppm Ore quality issues were also noted, which hampered plant recovery
Water - lower tailings water recovery coupled with a lack of access to water.
Flow - variability in the counter current decantation (CCD)…keh, which is related to pump and pipe sizing.
These issues are all resolvable but how long will it take and how much will it cost including reducing elevated operating costs however they are already seeing improvement in recoveries. They are set to update guidance in January 2025 and one can only expect to see a downgrade especially when you take into account a pre-planned 2 week shutdown in November. Original guidance of 4m to 5m pounds of U3O8 will likely be trimmed back to the lower end. PDN finished the quarter with unrestricted cash of US$55m and US$55m in undrawn debt (US$95m drawn) having burnt US$19m for the quarter.
Ramelius Resources (ASX:RMS) reported gold production of 62,5000oz’s at AISC of $1,965/oz which was well below consensus expectations production and well above assumed operating costs.
RMS maintained FY2025 guidance at 270,000-300,000oz’s at AISC of A$1,500-1,700/oz keeping in mind that RMS had indicated a second half weighting to their guidance due to Cue coming online and mine scheduling at Penny.
RMS reported a cash and bullion of $438.6m (no debt) at quarter end which was down with free cash flow of $89.6m being offset by the $97.6m investment in Spartan Resources (ASX:SPR).
The optimal Mt Magnet expansion case is now looking at 3mtpa following a study evaluating the 2.5-4mtpa options. The Resource for Eridanus and the mill expansion study are expected to be released in December 2024 and the integrated Rebecca-Roe PFS is also on track for delivery in December 2024.
Horizon Minerals (ASX:HRZ) have taken a step towards becoming a producer announcing a merger with Poseidon Nickel (ASX:POS) in a deal that will see POS shareholders receiving 0.1156 HRZ shares for every POS share.
The deal equates to $0.006 per POS share, representing a 40 per cent premium to the 30 VWAP and will see HRZ shareholders controlling 69.8% of the merged vehicle. The combined groups will have resource inventory of approximately 1.8m oz’s @ 1.84g/t Au and about 422,700 tonnes Ni @ 1% as well as a big chunk of exploration ground and Poseidon’s Black Swan processing infrastructure in the Kalgoorlie-Coolgardie. It is believed the Black Swan concentrator will unlock value for its high-grade Nimbus silver, zinc and gold project, which contains 20moz’s of silver, 78,000oz’s of gold and 104,000 tonnes of zinc. Horizon said the refurbishment of the front end of the Black Swan processing plant and conversion of the back end to facilitate gold production presents a significantly faster, lower capital pathway to gold production compared to building a new gold processing plant in the region. To fund the merger, Horizon has received firm commitments from investors to raise $14 million at $0.045 per share, with the proceeds to going towards the Black Swan feasibility study, 50,000m of extensional and resource definition drilling, mining studies and working capital.
With coal markets alive n well and coking coal in particular, we have been closely monitoring the performance of Whitehaven Coal (ASX:WHC) following the 100% purchase of Daunia and Blackwater metallurgical coal operations from BHP and Mitsubishi.
As a result of these acquisitions sales revenue now has a strong bias towards coking coal (64%) rather than thermal (36%). WHC produced a strong quarter with costs towards the lower end of guidance with Qld operations leading the charge with higher productivity while the NSW operations disappointed due to a focus on overburden removal at the open cuts meaning ROM production is weighted towards the second half. WHC have reconfirmed FY2025 guidance and advised that decisions on major capex items are on hold while the integration of the QLD projects is bedded down. The Blackwater 30% selldown is expected to be completed in Q3 FY2025 with US$1.1 billion coming into the coffers leaving a strong balance to meet deferred consideration payments to BHP and Mitsubishi as follows:
US$500m, US$500m and US$100m on the first, second and third purchase anniversary of the
payments of up to US$900m (capped at US$350m annually), which are dependent on realised pricing exceeding agreed thresholds
Javelin Minerals (ASX:JAV) have further consolidated their position in the goldfields by acquiring Delta Lithium’s (ASX:DLI) Eureka Gold Project for $3m in cash n shares plus $1m in deferred consideration shares.
Eureka lies just 50 clicks north of Kal and a bees pencil from the Paddington mill should they be able to come up with a revised high grade resource. Eureka had some narrow historical high grade hits including:
4m @ 134.52g/t Au
3m @ 48.75 g/t Au
4m at 32.08g/t Au
Eureka has a current JORC compliant resource estimate of 2.45mt at 1.42 g/t Au for 112,000oz on granted historic mining leases and should JAV increase these up to 200,000 ounces of inferred resource DLI will be recipient of another bucket load of JAV shares (don’t be surprised if it comes in just under) The likes of Penny West (RMS) and Never Never (SPR) deposits were both spawned from mothballed deposits and JAV are fortunate to have the services of experienced boondy kicker Brett Mitchell who loves nothing more than getting dust under his RM’s in the goldfields .
Who’s shaking the tin…
Mithril Silver and Gold (ASX:MTH) - $12.5m at 50 cents
Coda Minerals (ASX:COD) - $5m at 7 cents (plus 1:2 option)
Recharge Metals (ASX:REC) - $2.5m at 2.5 cents
Lithium Universe (ASX:LU7) - $3m at 1.25 cents - (plus 1:1 option)
Horizon Minerals (ASX:HRZ) - $14m at 4.5 cents
Moab Minerals (ASX:MOM) - $2m at $0.003 (plus 1:2 option)
Great Boulder Resources (ASX:GBR) - $ 5m at 4.2 cents
Black Dragon Gold (ASX:BDG) – $7m at 25 cents (CDI’s)
Caprice Resources (ASX:CRS) - $2.5m at 2.4 cents
Cobre (ASX:CBE) - $3m at 6.5 cents (plus 1:2 option)
Capricorn Metals (ASX:CMM) – $200m at 6 bux
Midas Minerals (ASX:MM1) – $1.6m at 8 cents
Ironbark Zinc Limited (ASX:IBG) - $10m at 20 cents (plus 2:3 option)
Rumble Resources (ASX:RTR) - $5m at 4.5 cents
Lode Resources (ASX:LDR) – $4.5m at 10 cents
Red Metal (ASX:RDM) - $6m at 10 cents (SPP)
Meeka Metals (ASX:MEK) - $35m at 7 cents
St Barbara (ASX:SBM) - $100m at 38 cents
Bellavista Resources (ASX:BVR) - $5m at 38 cents
Kingsland Minerals (ASX:KNG) - $2.6m at 23 cents
Metal Bank (ASX:MBK) - $1.56m at 1.6 cents
Sky Metals (ASX:SKY) - $6m at 5 cents
A cracking DFS from…
Phil Russo, Managing Director, Toubani Resource (ASX:TRE)
Phil has been working diligently away in the ‘lucky office’ at HQ for the past 20 months since his appointment as CEO in Jan’23. The project has been around awhile, and previous incarnations had this being developed as a 100koz pa operation (3mtpa) and a stockpile of 18mt created.. not the most efficient in terms of scale/working capital. So, Phil and the team set about looking at what this project could deliver and this week all that hard work came to fruition with the release of Koboda DFS.. and what a ball tearer it was.
In a very detailed and thorough 30 page presentation the key fundamentals of the DFS are summarised in slide 15:
1.56moz ore reserve based on a gold price of US$1,650/oz
Initial Capex US$215m (A$330m peso’s )
Annual production of 162,000 ounces at AISC of US$1,004 (A$1,530) for 9 yrs with first seven years of oxide ore.
Annual Operating Cashflow US$158m (A$240m)
Post tax NPV8 US$635m (A$0.96bn), IRR 58% at a gold price of US$2,200/oz.
Post-tax payback 1.5 years
This is one of the more robust studies we have seen and all this using a gold price of US$2,200 (A$3,350), heaven forbid if you plug today’s gold price into the model. They did and at US$2,600/oz the NPV increases to US$897m (A$1.33bn) and IRR of 73%. Why do the numbers look so good when the average head grade is 0.9 g/t Au ? Two reasons; very, very soft ore and very low strip ratio. A bond work index on the oxide of 3.7x compares to the typical gold project of 15-23x and I do remember the ore at the Karonie open pit east of Kalgoorlie - a silicified amphibolite (Geo speak for f…n hard rock)running at like +25 and bouncing out of the crusher… A LOM strip ratio of 3:1 is nice but with a stage 1 pit of 1.8:1 it’s even more compelling. So, the net effect is the ore is predominantly free dig (no drill and blast) and requires minimal crushing and grinding hence the very low operating cost plus economies of scale on a6mtpa plant delivers a processing cost of just $8.30/t and an ASIC of US$27.90/t. This has all been signed off by Lycopodium – the pre-eminent West African specialists. TRE still believes there is room for improvement to reduce capex and opex plus add some high margin, shallow oxide ounces which could defer the higher strip Stages 2 and 3 pits. In addition, it also plans to test some of the deeper targets with a nice intersection of 51m @ 2.72 g/t Au from 123m requiring some follow up with the plan to reach FID by mid CY’25. Whilst TRE share price has done pretty well – doubling in the past six months, it still only has a market capitalisation of $70m with $10m in the bank. This implies a Price to NPV of 0.07x which is way below the typical P/NAV of say 0.3-0.4x for its peers and over the years we have rarely seen good assets, no matter where they are located, remain at a such a discount for long.