Chieftain Chatter
Obliteration of a nation…
Given the extent of tariffs imposed on major trading partners it was no surprise stocks have been hit hard and we can expect to see maximum volatility in the short term.
The total tariff on Chinese goods will now be 34% while the following countries got hit with varying levels including EU: 20%, Vietnam: 46%, Japan: 24%, UK: 10%, South Korea: 25%, Thailand: 36%, Switzerland: 31%, Cambodia: 49%, Taiwan: 32%, Malaysia: 24%. Although further detail will follow on specifics it essentially confirms we a facing higher inflation and lower growth which will only further dent consumer sentiment and appetite for risk assets. We now await the response from those major trading partners that have been hit the hardest, namely China and Europe, however it has been reported that the EU is looking at measures to support industries that are hit the hardest by tariffs while China has been forthright in their response threatening immediate counter measures if they are not withdrawn. Perhaps the only hope is that these tariffs will be used as a political football to come to the negotiating table and state your case for a compromise.
But it’s not all bad news with some commodities to be exempted following a late White House release including:
Uranium
Steel/aluminium articles and autos/auto parts already subject to Section 232 tariffs
Copper, pharmaceuticals, semiconductors, and lumber articles
Gold
Energy and other certain minerals that are not available in the US.
This is particularly important for Australian gold, with exports to the US hitting $4.6 billion in January 2025, over 85 per cent of total gold exports.
As gold marched past US$3,100 an ounce Goldmans certainly went out on a limb when upgrading their gold price forecasts last week to US$3,300 with an outlandish comment that their medium-term bias is “skewed to the upside” (crazy stuff). Furthermore, they did suggest “in extreme tail risk scenarios gold could plausibly trade above US$4,200 by the end of 2025 and exceed US$4,500 within the next 12 months”. Surely following events of the last week, we are in “extreme risk” territory however they caveat this with a very low probability event and it’s very convenient for Goldmans to have a wide-ranging forecast of US$3,300 to US$4,500 giving them plenty of forecasting wriggle room!
Furthermore, on gold, it continues to benefit from record inflows into ETF’s and continued central bank buying as they reduce their USD exposure as concerns mount about the US debt hole. As cash balances of gold producers escalate by the day the level of M&A activity has reached fever pitch levels as this growth path is preferred over the headache and uncertainty of drill, discovery, resource, studies, financing, and development etc etc. While new discoveries are becoming more sparse the pressure remains on all producers but particularly our ASX the mid-tier operators to deliver a production growth profile to fuel their share prices. The Au price has seen the remergence of many previously moth balled projects which are polishing up quite compellingly in this environment.
The Stagflation story continues to gain momentum with manufacturing data coming in below expectations (49 v 50.3 last month) and thus suggesting the US economy is in contraction mode while new factory orders are at their lowest level in nearly two years but for the second month in a row prices continued to rise. This all adds to the uncertainty for the outlook for earnings with one analyst suggesting “business conditions are deteriorating at a fast pace” Tariffs and economic uncertainty are making the current business environment challenging. Independent Research House Antipodean Capital have been suggesting this for some time but are now saying “US stagflation dilemma worsens. Stocks will collapse further towards mid 2024 levels, cementing 20-30% bear markets in the process. Put your helmet on, this is gonna get nasty.” The underlying problem of tariffs and DOGE to tackle the US’s insurmountable debt pile are the ramifications of lower corporate earnings hence lower GDP growth and rising prices and thus limiting the Feds ability to cut rates as planned. The big US investment banks are now suggesting that the recessionary odds have lifted from zero to 50% in a couple of months.
Despite the shit storm the copper price has outperformed most other base metals however the COMEX (US) price continues to trade at a significant premium to LME (UK) as the US hoovers up supply in the wake of tariffs (unless exempted).
Historically, the LME has been seen as a more credible reflection of the true state of demand/supply fundamentals where as COMEX is seen as a more futuristic forecast. With copper supposedly being exempted it will explain part of the pullback below US$5 per pound in recent days.
In addition, in recent times Chinese smelting costs have dipped into negative territory meaning they are having such a hard time sourcing material they are prepared to take a financial hit to keep the wheels turning.
“Copper that might have been destined for other parts of the world is now being rerouted to the U.S. to take advantage and arbitrage premium,” a Sprott ETF Manger quoted.
In terms of simple demand metrics Glencore estimates the global copper supply must grow by about one million metric tons a year through 2050 to meet rising demand. That would require annually adding production equivalent to the world’s largest copper mine, Chile’s Escondida.
Quote of the week….
“When businesses don’t know what trade will look like next quarter, they stop hiring, stop investing, and freeze plans. That ripples through to consumers. This chilling effect is how recessions begin.”
Nigel Green, CEO of deVere Group.
On the lighter side….
School of hard rocks…
I would hazard a guess that Rio Tinto (ASX:RIO) were “happy as a dead bird” (excuse the pun) to discover that the thought to be extinct Night Parrot reappeared putting a spanner in the works of their Winu project development plans.
The Night Parrot was thought to be extinct for over a 100 years has been detected on their project known as the “copper whopper” in the middle of WA somewhere. RIO has been subsequently forced to cut all identified night parrot habitat from the project’s development envelope to minimise any possibility of disturbing the critically endangered bird. Although know one has seen the bloody parrot it’s squark) has been detected in the dark hours of the night in an area destined for a bore field although in the previous 2,500 nights of audio monitoring nothing was detected. Rio unveiled a joint venture deal with Sumitomo with the Japanese conglomerate agreeing to pay $US399 million for a 30 per cent equity stake in the project. Rio have turned around their lack of cultural sensitivity following their gelignite solution to rock shelters at Juukan Gorge five years ago which is good news for the bird.
Our favourite and only power infrastructure company Genusplus (ASX:GNP) have rolled out another complimentary acquisition after agreeing to buy 100% of MGC Group Holdings. MGC achieved an EBITDA of $4m in FY2024 and the deal reflects an EV/EBITDA of 2.6 times. Upfront consideration was $10.25m with a small deferred component on achieving financial hurdles and the deal will be financed out of existing cash reserves. WA based MGC supplies safety critical rail systems including overhead line equipment, signalling, electrical and communications across a range of industry sectors.
Emerald Resources (ASX:EMR) cleaned up the last of it’s debt facility with Sprott by paying the last US$6.5m of their US$60m financing. As a result, their Gold Price Participation Agreement is extinguished removing the 1.45koz/month discounted sales for EMR.
EMR is now debt free and unhedged and at the current gold price (how long can it last!) they are forecasting cashflow will improve by around $8m per month as a result. Following their little production miss in the first quarter we expect to see a solid bounce back in the current quarter and they still remain one of the lowest cost producers at AISC’s of about A$1,360 per ounce.
That nifty former South Fremantle on baller Phil Russo’s Toubani Resources (ASX:TRE) have reached an all important fiscal agreement with the Mali government for the development of their Kobada Gold Project via a joint venture agreement whereby:
65% interest retained by TRE.
35% by Govt with 10% free carried, 20% paid interest and 5% paid interest for national investors.
2% royalty discount (assumed now to be 11 or 12%)
discounted income tax rate of 25% for first 5 years, thereafter 30%
Mining Licence valid for initial 12 years + renewable for 10 years
Kobada’s economic fundamentals look extremely compelling, especially when you plug in the current gold price.
TRE will power towards the final documentation for execution and plug the new terms of the fiscal agreement into the DFS and start talking in earnest to potential funders.
Turaco Gold (ASX:TCG) released assays from a 32-hole shallow drilling program at the Begnopan prospect at their 80% owned Afema project in downtown Cote d’Ivoire.
Better results included:
34m @ 3.44g/t goldfrom 65m
8m @ 5.28g/t gold from 46m
6m @ 6.12g/t goldfrom 73m
15m @ 2.29g/t gold from 51m
These results confirm historical mineralisation and the potential growth of TCG’s resources although these results will not be included in the imminent resource upgrade.
Argonaut are still expecting a chunky resource from 2.5m ounces to 3.25m to 3.5m ounces with more upgrades to follow.
Delta Lithium (ASX:DLI) updated their resource for the Yinnetharra Lithium Project in the Gascoyne with a revised resource of:
21.9m tonnes at 1.0% Li2O
This represents a 15% reduction in tonnes over the previous estimate due to increased data from the infill drilling program and 75% of the resource now sits in the indicated category which should see a smooth transition to reserve status once the PFS is completed. The project also includes a tantalum resource of 39.4m tonnes at 102ppm Ta2O5 which equates to about 4m kg’s of Tant which sells for about US$237/Kg. This potential byproduct via conventional gravity separation techniques such as spirals and tabling will produce a saleable concentrate onsite, with modest additions to the flowsheet design.
Benz Mining (ASX:BNZ) has released exploration results from its maiden drill program at its 100% owned Glenburgh Gold project.
They have intercepted a nice high-grade discovery 80m down plunge at Zone 126 with better results including:
11m at 19.9g/t Au from 274m
5m at 10.2g/t Au from 222m and 7m at 3.5g/t Au from 233m
4m at 12.2g/t Au from 319m
8m at 5.6g/t Au from 243m
Further assays from this program are pending and an updated resource estimate is expected in H2 2025 following the completion of the drill program and in-depth geological reinterpretation.
Southern Cross Electrical (ASX:SXE) falls into the quiet achiever category having gone up about 80% in the last 12 months. It’s more than just a bunch of sparky’s twitching a few wires and replacing a few globes with specialties in instrumentation, communications, security, and maintenance servicing the infrastructure, commercial and resources industries. Via organic growth and acquisition SXE has grown revenue from $200m in in FY 2017 to $550m in FY 2024. Their latest acquisition is a leading east coast fire safety group called Force Fire Holdings for around $53.3m of which up to $17.2m is deferred consideration. FFH has been around for 25 years and was forecasting revenue of $106m in FY2025 for an EBIT of $8.3m. Although initially earnings neutral in FY2025 it’s expected to add at least $10m in EBIT thereafter and the acquisition will be funded from their existing $113m of cash reserves.
Gold Road Resources (ASX:GOR) distain for Goldfields (ASX:GFI) attractive cash bid was largely due to GFI offering them what they believed were crickets for the underground exploration upside.
Well, there has been some method in their madness with GOR reporting results from Gruyere which seem to support an underground study with a solid set of numbers below the open pit reserve including:
119m at 1.1g/t incl 33m at 1.6g/t
54m at 1.6g/t incl 28m at 2.0g/t
68m at 1.1g/t incl 21m at 1.4g/t
52m at 1.1g/t incl 19m at 1.5g/t
Four rigs are currently banging away to complete the 60km underground drilling over the next 18 months. GOR has provided further colour to shareholders on the GFI bid stating it remains willing to engage with GFI to ascertain if a transaction can be made that delivers full and fair value for GOR shareholders.
On the back of some nice infill and extensional results at Turnberry Central a couple of weeks ago Meeka Metals (ASX:MEK) also gave us a development update for their Murchison project last week which appears to be running scarily on schedule.
Installation of the 750kW ball mill has been completed at Andy Well and open pit mining is accelerating with first ore expected this month. Work to access the narrow high-grade Andy Well underground also continues with de-watering infrastructure installed and mining activities will crank up with first ore expected in the middle of the year. All of this should see first gold pour in the first quarter of FY2026 with the initial 12 months of ore predominantly coming from the St Annes open pit and Turnberry. Nothing like a pretty picture of a mill…
Who’s shaking the tin…
Western Yilgarn (ASX:WYX) - $520l at 3.6 cents (plus a loyalty option)
Critical Resources (ASX:CRR) - $1.1m at $0.004 (plus 1:4 option)
Superior Resources (ASX:SPQ) - $ at $0.0046 (plus1:2 option)
Inca Resources (ASX:ICG) - $1.1m at $0.0045
Saturn Minerals (ASX:STN) - $23m at 21.5 cents
Tempest Minerals (ASX:TEM) - $1m at $0.005 (plus1:2 option)
Latrobe Magnesium (ASX:LMG) - $6.3m at 1.1 cents
Bubalus Resources (ASX:BUS) - $1.5m at 16.5 cents
Hamelin Gold (ASX:HMG) - $2.8m at 7 cents
A capital raising with…
Hamelin Gold (ASX:HMG)
They say timings everything in this game and never was this more than evident last week when this WA gold junior slid into a trading halt just before the proverbial hit the fan.
Since IPOing in November 2021 HMG has had some sniffs of technical success along the journey but still yet to achieve the motherload. Anyway, with the continued support of major shareholder Goldfields HMG will roll the dice again on another program in the Tanami where just across the border in excess of 25m ounces has been unearthed. They will hit the ground running with a range of drilling activities in the Tanami to follow up the sniffs of success from the past in hope of finding the high-grade source. HMG have also put together a package of exploration tenements in the Yilgarn region of WA and have already completed 2,000 metres at a prospect called Ularring which lies smack bang between Ora Banda (ASX:OBM) (Riverina) and Gorilla Golds (ASX:GG8) Mulwarrie projects.