Chieftain Chatter
It’s not a case of if but when…
As we all strive to be cleaner and greener surely the powers at be have to shift their nuclear stance if they are indeed concerned about our longer term wellbeing?
With gas and coal prices soaring to new highs our most stable and emission free source of power must be nuclear.
We have an abundance of the raw material in Australia which we are happy to export globally, yet we continue with fossil fuelled energy sources and less reliable renewable alternatives.
The much criticised argument of the safety of nuclear reactors is losing momentum with significant technological advances being made in the areas of safety and waste management.
The opposition government is proposing the use of Small Modular Reactors (SMR’s) developed in the old dart by Rolls Royce to replace coal and gas fired power stations to save our manufacturing sector moving offshore.
Although the capex. of a new reactor is significant, once operational the cost of generating electricity is lower than the fossil fuel alternative and stable over the longer term.
Not to diminish the argument of safety, nuclear proliferation, waste management disposal and eventual decommissioning but surely it must be considered a realistic alternative as illustrated in many parts of the developed world.
Inflation in the US is back on the rise further diminishing any hopes of a rate cut soon with the US headline consumer inflation rising by 0.4% in March to 3.5% when 0.3% and 3.4% were expected plus the core rate(minus tucker n juice) rose 0.4% to 3.8% when 0.3% and 3.7% were expected.
Likewise, producer inflation rose 0.2% in March which was a tad softer than expected after a 0.6% rise in Feb and the core rate similar.
Although those movements may seem marginal there is definite a trend emerging in the last 3 months prints and hence markets caught a mild sniffle.
Furthermore, the March Fed. minutes stated:
“Participants generally noted their uncertainty about the persistence of high inflation and expressed the view that recent data had not increased their confidence that inflation was moving sustainably down to 2 percent.”
Will be interesting to see how this all plays out and it all seems a far cry from all the doomsday recessionary talk that was verbalised in the latter half of 2023 with markets remaining remarkably resilient with cash sitting on the sidelines waiting to pounce.
Canaccord’s Tony Dwyer still believes the market remains toppy and further upside is limited from here but, like all good politicians hedges his bets that if rates do indeed come off and corporate earnings remain solid then perhaps, we can avoid a shit storm. Therefore, with interest rate cut expectations on the slide following a raft of robust economic data it may give rise to a short term market correction before we witness the first rate cut in the US (much) later this year. However, should earnings continue to exceed or meet expectations in the second half then order will be restored in financial markets The simple fact remains that inflation has retreated despite the current hiccup and the economy has remained intact albeit at a slower rate suggesting we maybe able to cope with the current level of rates for an extended period.
Our future lies in the hands of the Fed and what they do (or do not) do with interest rates.
Tony’s conclusions:
Inflation continues to trend toward target, which helps Fed speak to rate cuts. The recent inflation and economic data suggest the “last mile” in the path to 2% may prove difficult, but for now, the trend remains intact.
A difficult “last mile” on inflation keeps upward pressure on market rates and likely dampens dovish Fed rhetoric. The recent commentary from the various members of the FOMC suggests that absent significant worsening in the employment picture, they are unlikely to lower rates in June.
A resilient economy keeps the Fed “higher for longer.” Although our leading money and economic indicators have pivoted higher from historically weak levels, a higher-for-longer rate environment should help contain excessive optimism for broad economic growth.
On the local front you can’t see the RBA moving on rates until the Fed. makes a move however, the housing market always seems to largely lead the charge in Australia. Our residential construction market remains flat with housing starts at their lowest level in 12 years when we need it most. The market remains significantly under supplied and the government’s 5 year target of 1.2 million homes looks like falling well short unless there is some relief in sight. We have seen a surge in migration yet new home, land and the construction loan markets remain depressed. While the existing dwelling market remains robust, affordability is low due to significant house price rises and this flows onto the construction market where construction costs have surged. Hence we are not likely to see a pick-up in new housing activity until rates fall and affordability improves. You will see some big numbers bandied around to be invested into the residential construction market however a lot of that work hasn’t commenced or has stalled due to collapse of builders across the country.
Also, the simple fact remains the for the average salary and wage earner to save for a 20% housing deposit is 10 years which has almost doubled in 30 years.
Quote of the week...
“Poverty is the worst form of violence.” – Mahatma Gandhi
On the lighter side….
School of hard rocks…
Mt Gibson Iron (ASX:MGX) announced they had shipped 700,000 wet metric tonnes of +65% iron fines from Koolan Island for the March quarter
MGX remains on track to achieve its annual FY24 shipping guidance of 3.8-4.2 Mwmt’s and generated $72m in the quarter finishing with $430m in the kick..
MGX has reserves of 12.4mt’s of 65% stuff at the end of June 2023 and despite the somewhat depressed nature of the iron market they are still achieving a healthy US$111 per dmt for delivery in China.
The old Family Zone now Qoria (ASX:QOR) received an unsolicited bid of 40 cent cash bid from US private equity group K1 Investment Management.
As part of the deal K1 advised they had secured a call option with a couple of substantial shareholders for 14.4% of QOR.
The “stop ya kids from watching bad shit online etc.” software company was quick to reject the offer on the basis of:
It does not reflect QOR’s position as a global leader in child safety and wellbeing.
It ignores QOR’s strong growth prospects in a highly supportive regulatory environment.
It is opportunistically timed given the Company is at the cash profit inflection point and is in the midst of its most profitable sales quarter.
Given the rocky road the company has experienced to get to a cashflow positive position and in the absence of a higher offer I would be off like a dead quokka if I was a shareholder (usual disclaimers apply of course)
Westgold Resources (ASX:WGX) and Karora Resources (TSX:KRR) have decided to join at the hip with KRR shareholders receiving 2.524 WGX shares for each share held, plus 68 cents in cash and 0.3 of a share in a new entity to be de-merged from KRR, valuing KRR at C$5.90/share.
The merged entity will have a pro forma market capitalisation of $2.2 billion with WGX shareholders controlling 50.1% and KRR 49.9%.
Karora board and management are voting in favour of the transaction and at time of announcement represented a 10% premium to KRR’s closing price of C$5.36/share and a 19% premium to 20-day VWAP of A$5.55/share.
The merger plugs the production gap for WGX with the addition of a quality production asset in Beta Hunt and the accompanying underground mining team.
The new WGX will have 5 processing facilities with combined capacity of 6.9mtpa and in excess of 3,000 km2 of prospective tenure spread across WA for production of 400,000 ounces per annum and resources of 13m oz’s and reserves of 3.2m oz’s.
That cagy boondy kicker and Solstice Minerals (ASX:SLS) MD Nick Castleden has pulled (another) rabbit out of the hat flicking their Hobbes Gold project to Northern Star (ASX:NST) for $12.5m.
SLS 80% share in the project will see another $10m into their coffers taking their balance to around $18m to work up a new project and roll the dice again.
Even post the deal they traded a healthy 9m shares closing at 15 cents for negative enterprise value of about $3m
The Hobbes project hosts a resource estimate of 4.6 million tonnes at 1.2g/t Au for 177,000 ounces of gold and lies just 5km southwest of the Porphyry Mining Centre, where NST operates open pit and underground gold mines and is hauling material to its Carouse Dam mill located 36km to the south.
The market didn’t seem to give a rats rissole but, Wildcat Resources (ASX:WC8) announced a new zone of mineralisation named Luke (assume he found it) below the main Leia pegmatite.
WC8 had previously reported visual shows and when subsequently drilled to 200+ metres depth came up with:
80.3m @ 0.8% Li2O including
41.0m @ 1.0% Li2O from 267m
24m @ 1.3% Li2O from 276m
The true width is unsure however 5 holes have visually intercepted the pegmatite over 500 metres of strike and although early stage but this could potentially add valuable tonnes to the resource
Still, plenty of assays pending for 27 diamond and 30 RC holes, meanwhile Leia infill drilling included:
68.0m @ 1.4% Li2O from 337m
58.7m @ 1.3% Li2O from 333.
Likewise Spartan Resources (ASX:SPR) have released further results at depth from their Never Never and Sly Fox and the share price retraced.
It’s getting bloody deep with the deepest hole to date being at 1km and returning visible gold however there are some signs the orebody narrowing at depth
Significant results at Never Never included:
15m at 2.1g/t from 807m, (extensional)
18m at 1.66g/t Au from 839m, (extensional)
12m at 14.32g/t Au from 570.91m, (Infill)
14m at 10.1g/t Au from 667m, (Infill)
Extensional results reported at Sly Fox and West Winds also included:
23m at 2.45g/t Au
12m at 1.01g/t Au
36 at 1.16g/t Au
Still, plenty of action with 5 rigs focussing on extensional and infill for the resource and $20m to fund it this is still a standout project with quality existing infrastructure.
Patriot Battery Metals (ASX:PMT) share price is still suffering from PMT despite producing more solid intercepts from their Corvette Lithium Project in Canada.
New results from the CV13 deposit returned results include:
29m at 1.49% Li2O
20m at 1.16% Li2O
Better new results from CV9 include:
100m at 0.39% Li2O
16m at 0.76% Li2O
Plenty of assays still outstanding and drilling continues between CV13 and their main CV5 deposit demonstrating that the two may well connect, meanwhile a new resource is due in September.
Beach Petroleum (ASX:BPT) have announced further cost overruns and delays at Waitsia (BPT 50%,Mitsui 50%)as a result of quality issues in the pre-commissioning phase.
The update follows the identification of various quality issues during the pre-commissioning phase at the Waitsia Gas Plant, including the need for rebuilding compressors and replacing valves and flanges. Despite substantial completion of these initial problems, new quality concerns have emerged, necessitating further delays and additional costs. First gas is now expected early next year reflecting a 6 month delay followed by 3 months of ramp up to full production if all goes to plan!
Capex has blown out to $600m-$650m for BPT’s share from a previously guided $450m-$500m, strewth, that’s a bit more than cost inflation.
Unavoidable processing costs (pipeline tariffs and Northwest Shelf take or pay liquefaction costs) based on the above first gas target will also be incurred in FY25. Beach will continue to assess options to partially mitigate unutilised capacity under its arrangements.
A little off topic but very relevant to the wellbeing of WA economy even though it doesn’t ride on the sheep’s back so much these days but Aussie icon Elders (ASX:ELD) hit the market with a chunky downgrade last week.
For those of us in the know it doesn’t come as a great surprise given the collapse of sheep and cattle prices in WA and no bloody rain since October.
Since their full year result in November last year Elders shares had basically run from 6 to 10 bux but plunged 20 odd percent last week following a shitty trading update due to the weather (El Nino etc.)
EBIT is now expected to be in the range of $120m to $140m in FY 2024,debt ratios will blow out to 1.5/2x however their target cash conversion of greater than 90% of underlying NPAT is forecast to be achieved at 30 September 2024.
Never an exact science in the Ag. game but worth a revisit should the stock re-test its lows in this seasonal but solid business….bahhh!
Image source: Getty Images
Who’s shaking the tin…
A lot of entitlement issues amongst this lot…
Alice Queen (ASX:AQX) – $3.64m at $0.008
Coolabah Metals (ASX:CBH) - $2.5m at 4 cents (plus 1:4 option)
Great Southern Mining (ASX:GSN)– $1.8m at 2 cents
Empire Resources (ASX:ERL)– $741,957 at $0.002
VRX Silica (ASX:VRX)– $3.1m at $0.007 (plus 1:2 option)
Argenica Therapeutics (ASX:AGN) - $10m at 52 cents
Aguia Resources (ASX:AGR)- $1.37m at 1.6 cents
Ansell (ASX:ANN) - $400m at $22.45 (to buy a new franga business)
New World Resources (ASX:NWC) - $10m at 3.6 cents
A meeting with….
Chris Evans, MD of Winsome Resources (ASX:WR1)
We love going to a meeting where it’s difficult to find the actual company with minimal signage etc and Winsome Resources (ASX:WR1) was one of the best – tucked away in a little corner of a marketing company called ‘Spoke’ and paying $500/month for a small office. We were interested to catch up with Chris as WR1 had just announced a very interesting option deal to potentially acquire the Renard project some 60km north of its project and fast track into production. WR1 has defined a resource of 59mt @ 1.12% Li2O5 at Adina (top 5 Nth American resource) in Quebec and is due for a resource upgrade shortly. Interestingly, the first 10yrs are likely to be very low strip as the orebody daylights. One of the big drawbacks of the Nth American projects has been the permitting issue and time to production; some excellent discoveries are probably at least 4-5yrs away from being a mine. The Renard opportunity could potentially reduce this by say 2-3yrs and save capital of at least $300-500m (according to broker estimates). Renard was a previous diamond mine with some C$900m invested but placed on care and maintenance last year. It is a fully permitted mine site, with a 2mtpa plant (has run at 3mtpa), an airport, 16MW LNG fired power station, camp etc. with the opportunity to repurpose the existing plant (including DMS plant) to produce spod. WR1 have negotiated a smart deal: C$4m for an option period to end of Sept’24 which can be extended and then a total of C$52m in cash and/or WR1 shares. We love these types of deals where companies are buying assets for ‘cents in the dollars’ of spent capital. WR1 is on track for a resource upgrade in Q2’24 and then decision to mine Renard in late 24/25. The market clearly liked the deal pushing the stock from $0.75/sh to its current price of $1.30/sh but it’s not hard to envisage that if WR1 completes on the option deal then its leap frogs many of its competitors into production. We like Chris who was about to leave for a marketing trip to Asia, followed by going to site until at least August – no wonder they only need one little office in West Perth.