Chieftain Chatter
Is don is (no) good…
At what point will he pivot towards a more market friendly policy and allow the Fed to re-commence their easing program?
Well, it seems he reached his threshold of short-term unpopularity (or he had a margin call on his PA account!) and the world ex-China received a short-term reprieve.
One can only shudder to think how much money was made by those (Congressman) in the know in the last few days on various financial instruments. In justifying his latest round of craziness, he spewed out the usual verbal diarrhea:
“I thought that people were jumping a little bit out of line. They were getting a little bit yippy, a little bit afraid.”
“The bond market is very tricky. I was watching it. But if you look at it now, it’s beautiful – the bond market right now. But I saw last night where people were getting a little queasy.”
“Some companies, through no fault of their own, happen to be in an industry that’s more affected by tariffs. You have to be able to show a little flexibility, and I’m able to do that.”
And the winner is:
“Many countries are calling me and kissing my ass... dying to make a deal.”
Ultimately, does this change anything with China now facing 145% tariffs and the US economy having such a reliance on the import of Chinese goods, the plot only thickens. As highlighted by Antipodean Capital and JP Morgan “JP Morgan estimated that if major US retailers were to absorb all of the increased cost from tariffs rather than pass some of it on in higher prices then more than half of them would see their earnings more than completely wiped out. This reinforces the stagflationary nature of these developments: even in an environment of weaker demand, the extent of the cost shock will force businesses to pass on at least some of it in higher prices.”
With markets globally plunging 15-20% early last week which is a meaningful correction in anyone’s language it wasn’t surprising that we had the largest one day rise in the US market since 2001 on the Trump back flip. The US/China tit for tat global trade war threats can only go so far until a resolution must be sought. Regardless of tariff reprieves company ratios were close to full valuation levels and ripe for a correction. The outlandish and often contradictory nature of Trumps policy and explanation has only served to create greater nervousness in markets as recessionary fears still remain at elevated levels. As highlighted by AMP’s Shane Oliver the reciprocal tariffs imposed by the US are based on the trade deficit the US has with each country but primarily China. The US will raise about 10 times from tariffs on Chinese imports than China will be raising from US imports making it almost impossible for China to outtariffed by the US and the now 124% impost should only accelerate constructive discussions. Given he went harder than first expected and has subsequently backed it up with threatening dialogue may suggest these tariffs should be taken seriously by China rather than repetitive counter tariffs. Importantly, Shane points out the US excessive national spending in comparison to its income is the key driver of it’s record trade deficit so no reflection on trade partners taking them for a ride.
The depth of this current market correction will largely depend on the extent of any US recession with the odds now rapidly suggesting a 50/50 chance. In this lies the biggest threat to Australia’s economic wellbeing as although only 5% of our exports go to the US the overall impact of a global economic slowdown will have a fundamental impact on our largest trading partner and Asia in general, which will only accelerate the RBA’s rate cutting abilities. He goes on to say given the threat to global growth and hence earnings suggests company valuations still remain elevated on forecasts and we can expect to see further downside especially when negative GDP and jobs data starts to hit home. At some point this negativity will start to weigh on the Trump regime that will require some positive intervention in the form of relaxing certain tariffs and a focus on his promised tax cuts and deregulation.
US first quarter earnings have now started to feed through and will play a significant role in US Government and Federal Reserve policy settings. The focus won’t be so much on the underlying results but more so their earnings guidance for the quarters ahead and commentary on the outlook and the management and impact of tariffs. We can expect to see the words “recession risk” etched into outlook commentary as a precaution for what potentially lies ahead.
In an effort to unsuccessfully divert attention China has spruiked stimulus talks again suggesting they have room to ease borrowing costs and reserve rules for lenders if needed to defend its economy against the latest round of absurd tariffs. The emergency meeting is believed to focus on supportive measures for housing, consumer spending and technological innovation in an effort to boost the economy and stabilise markets. China’s daily rag the “People’s Daily “suggested “The reserve requirement ratio for financial institutions and the central bank’s policy rates can be cut anytime going forward” and that “There is still room for further expansion of the fiscal deficit, special treasury bonds and special debts.” “Extraordinary efforts will be made to boost domestic consumption, concrete and effective policy steps will be taken to firmly stabilize the capital market and restore market confidence, with relevant contingency actions to be rolled out in succession,” it said. In addition, governments at all levels will provide measured assistance to severely impacted industries and businesses, according to the article. Authorities will support companies in adjusting their business strategies and guide them to expand into domestic and non-American markets while striving to maintain trade with the US as much as possible.
The commentary acknowledged the ever-increasing tariffs will significantly impact exports to the US and apply further pressure to their economy. The article did however highlight the impact on the US economy will be significantly greater given their reliance on Chinese consumer goods which would be difficult to find a competitive alternative source. The bottom line is that the US/Chinas trade war has been escalating for many years and is well versed how to deal with it.
Sam Christies “Resource Snippets” is always a good read during the week for an insight into topical commodities and where they might be heading.
One thing he’s quite confident about is iron ore plummeting into US$80 per tonne territory into the Trump lead recession and with China being in excess of 60% of BHP’s revenue this could be the start of a significant hit to earnings. Australia is expected to export about 900 plus million tonnes of iron ore this year but will face new competition from Rio Tinto and Chinese state-owned entities who are building new iron ore mines in the Simandou mountains of Guinea. While Simandou is likely to only produce small volumes next year, it is expected to ramp up to 120 million tonnes before 2030. On the flipside and because he has to BHP’s chief commercial officer Rag Udd has been quoted as saying that Chinese steel makers will maintain current production rates for several more years and therefore believes prices will remain elevated during the EV revolution. “I still hear conversations taking place about residential construction markets tanking in China. But the equal and opposite conversation that gets missed is that machinery has gone from single digits to over 30 per cent of steel demand. EV production has gone up. Anything to do with decarbonisation has gone up,” he said.
Quote of the week….
Trump has pledged to help the declining coal industry, describing the fossil fuel as “BEAUTIFUL” on social media.
On the lighter side….
School of hard rocks…
Scratching for content this week, thank Christ for pre quarterly production and cash reports from the mid-tier gold producers…
Its quarterlies time again and has become standard practice the mid-tier producers reveal their numbers prior to their official month end quarterly reports (if the news is positive!). Ramelius Resources (ASX:RMS) was first uber off the rank highlighting that at the cash generation level these companies are spewing cash and RMS was no exception with $223m free cashflow leaving them with $657m Ausie Rubles in the tin. This was off the back of 80,500 ounces of production with Edna May delivering an improved 13,000 ounces while Mt Magnet produced 67,500 ozzies. Updated guidance will be provided in the quarterly for FY2025 but currently sits at 270,000-300,000 ounces at 1,500 to $1,700 AISC.
Next up, Capricorn Metals (ASX:CMM) produced 30,600 ounces for the quarter adding $57.6m to leave them with cash n bullion of $405m after $16m capex.
The capital spend was mainly on the southern corridor expansion at Karlawinda which appears to be running ahead of schedule while the approval process at Mt Gibson is progressing with the final submission expected shortly.
To date the 400-room accommodation village is complete and evaluation work for Mining Services and Power Supply contracts continued in the quarter and are almost ready for execution.
The Process Plant Design scope was advanced, achieving ~30% progress in the quarter, with site layouts finalised and long lead items such as the Ball Mill, committed.
In their quest to become a 400,000 ounce per annum producer Genesis Minerals (ASX:GMD) upgraded their reserves by 12 pussent to:
54m tonnes @ 2.1g/t Au for 3.7m ounces
While the combined resource inventory sits at:
210m tonnes at 2.2g/t Au for 14.7m ounces
The upgraded reserves number does include an initial estimate of 370,000 ounces from the Westralia Open Pit with plenty of upside with more than 4km of strike open to the north and at depth and it lies a mere 15km’s from The Laverton mill.
GMD’s current milling capacity is 4.4mtpa and has a +10 years of processing assured by the 65m tonnes for 4.5m ounces of potential production. FY2025 production guidance sits at 190,000 - 210,000 ounces at an AISC of A$2,200 - 2,400 per ounce with guidance for FY2026 to be updated in the September quarter.
Much to Goldfields (JSE:GFI) delight Gold Road Resources (ASX:GOR) have ripped out the abacus and come through with an underground exploration target at Gruyere of:
25-31m tonnes @ 1.2 – 1.47g/t Au for 1m to 1.5m ounces on a 50/50 basis with GFI
GOR believe this could deliver 178,000 ounces for 12 years with the potential for growth from further exploration.
The happy go lucky joint venture partners have committed $26m to drill the living suitcase out of the underground (60,000 metres) by the middle of next year with a PFS to follow. Initial infrastructure capex is estimated to be $470m with total infrastructure capital estimated at $588m for 100% of the underground expansion. Although the ASX forced them to retract part of the announcement they are now trading up around the unpresented $3.05 bid from GFI so perhaps GFI might have some room to move in order to sweeten the deal for key GOR shareholders to roll over.
Emerald Resources (ASX:EMR) anticipated and rare production miss at their Okvau Gold Mine came in at 19,062 ounces for the quarter due to pit cut-back activities restricting pit floor access, and some underperformance of mined grade. Gold sales totalled 23,636 ounces at about an average price of $4,650 generating pre-tax cashflows of $66m leaving just under $210m after paying a chunk of local (Cambodian) tax of about $54m and spending $23m on exploration and development. Costs although a little higher were within 10% of guidance at under $1,950 per ounce, remembering EMR is now debt free having recently paid back the US$60m Sprott facility. Production levels are expected to return to normalised 25,000-30,000 ounces per quarter @ $1,450 to $1,600 per ounce AISC’s with now unhedged cashflow to increase significantly.
Argenica Therapeutics (ASX:AGN) has successfully recruited and dosed the final patient in its phase 2 clinical trial of ARG-007 in acute ischaemic stroke (AIS) with results expected in the third quarter of this calendar year. The trial dosed a total of 92 patients with confirmed large vessel occlusion (LVO) ischaemic strokes who underwent endovascular thrombectomy which is a procedure to remove the clot from the brain. Patients were randomised 1:1 to receive either drug or placebo, with 50% receiving an intravenous infusion of ARG-007 and the other 50% receiving an intravenous infusion of saline. The trial will remain blinded until the final patient completes their follow up functional assessment performed 90 days post stroke. Once this is completed, the trial database will be locked, and the data will be unblinded and analysed to determine if the trial has met its predefined endpoints. There a range of primary and secondary endpoints looking to be ticked off and in parallel, AGN is due to submit its Investigational New Drug (IND) and Fast Track applications for ARG-007 to the US FDA this quarter.
Pantoro (ASX:PNR) seem to be steadily getting the ship back in order and all will be revealed in their forthcoming quarterly which is due out before the end of the month. The usual barometer of the later the quarterly release the worse (and vice versa) the result still applies so we will be watching closely over the next coupla weeks. In the meantime, they have released extensional and infill results from the OK underground mine with a dedicated diamond rig now operating around the clock targeting the Star of Erin and O2 lodes. Better results included:
10m @ 44 g/t Au
2.7m @ 139. g/t Au.
4m @ 102 g/t Au.
1.6m @ 13 g/t Au.
2.9m @ 10 g/t Au.
These results demonstrate the continuity of the O2 and Star of Erin lodes down dip and along strike. The 85,000m exploration program is ongoing this FY at Mainfield which has to date targeted the high-grade Butterfly area, and we look forward to continued exploration at Crown Reef and Crown Reef South via the existing Bullen decline, where UG drilling is currently underway. These exploration programs support production growth ambitions, where expanded Scotia and OK operations are expected to contribute to the mine plan from FY27 onward.
Commenting on the results, Managing Director Paul Cmrlec said: “The OK Underground Mine has been a strong performer since operations recommenced at Norseman. Annual production is tracking ahead of feasibility expectations and mined grades year-to-date have exceeded the Ore Reserve grade. We are confident the ongoing extensional drilling program will continue to deliver strong results and support an extended mine life at OK.”
Who’s shaking the tin…
Buxton Resources (ASX:BUX) - $3m at 2.5 cents
American West Metals (ASX:AW1) - $3.25m at 4.2 cents
Cassius Mining (ASX:CMD) - $500k at 1.5 cents
Superior Resources (ASX:SPQ) - $950,000 at $0.0046 (plus 1:2 option)
Bellevue Gold (ASX:BGL) – $156.5m at 85 cents
Nordic Resources (ASX:NNL) – $2.85m at 6 cents
Mt Malcolm Mines (ASX:M2M) - $700k at 2.3 cents
A meeting with…
Sam Smith, Executive Director of Santana Minerals (ASX:SMI)
We first met Sam a few years ago when he was at Breaker Resources which I imagine was no picnic working with the ‘The Colonel.’ However, he came across as a straight shooter and managed to deliver an outcome for shareholders (takeover by RMS) which if it hadn’t happened, I’d imagine they would still be drilling away 3yrs later. He started working at SMI in late 2023 when Cooky became Chairman and was appointed to the board in early 2024. When we first looked at SMI, the only question was how long will this project take to get permitted? – the answer, a bloody long time. However, changes were afoot in New Zealand with the Jacinta A’dern experiment over, and a new conservative govt intent on fast tracking projects that will make a difference to the country. In the meantime, with Cooky et al in charge the company completed a scoping and then a PFS study in late Nov’24. The PFS showed a project capable of producing 125koz pa @ $1,416/oz AISC for 9 yrs with the first three yrs doing 147koz. At a $4,000/oz gold price the NPV8 was $1bn with an IRR of 68% and payback of <1yr. Capex was estimated at $340m with $208m for the larger plant and $132m for the pre strip (39.5mt). The market didn’t love the higher capex number with the stock falling from its highs of $0.75/sh to current levels of $0.45/sh. A PFS update is due in the next couple of months that will look at trade-off studies etc so maybe a smaller plant/reduced capex scenario and a smoother profile on the strip. The real sweet spot is in Years 3-4 when the grade is forecast to be >4 g/t Au – not too many open pits with that grade! The fast-track approvals bill was passed on Dec’25 with applications open in Feb’25. SMI has pushed back its submission timeline from April to end of June/25. The dream is for approvals within 6-9 months and then crack on into building it. The project looks like it can support a good level of debt, especially in this gold environment. SMI continue to drill - both infill and extensions with some good results. With a market capitalisation of $330m it screens cheaply against other development peers. We can’t help thinking that once it’s permitted then it would make a nice bolt on acquisition for a myriad of mid cap producers with bloated balance sheets courtesy of $5,000/oz gold price and little organic growth options.