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Copper Market Outlook

Copper is presently engaged in a tug-of-war between negative near-term factors and positive longer-term considerations. Copper is facing near-term economic/trade-related concerns on the one hand, which have negatively impacted metal pricing and demand; whilst on the other hand the outlook is positive based on the prospect that copper mine supply will fail to keep up with burgeoning electric vehicle (EV) demand, along with other applications. These near-term negative issues have adversely impacted the share prices of copper producers and aspiring producers alike, making it harder for them to gain market traction and generate the funding that will help bring to new copper supply to market. Near-Term Outlook While the global manufacturing sector has experienced significant headwinds so far in 2019, a revival of optimism in copper end-users could fuel a wider improvement over the coming months and into 2020. Countermeasures to US trade tariffs have contributed to a rebound in Asian manufacturing, suggesting that although demand pressures remain weak, there is the prospect of some relief to the current slowdown. The IHS Markit Global Copper Users PMI is a composite indicator that provides an overview of operating conditions at specific manufacturers identified as heavy users of copper. It is based on data provided by companies around the globe. As many copper users are producers of primary manufacturing goods, the index that measures output levels can also provide an indication of the direction of global manufacturing output. The Global Copper Users PMI rose above 50.0 during September, indicating the first improvement in business conditions since November 2018. Key to the upturn was a moderate expansion in output, the fastest for a year, as firms looked to build stocks of manufactured goods in hopes of stronger future demand levels. On a regional basis, Asian copper users have seen the greatest change in the output trend this year. Production during the second half of 2018 was mired by the introduction of US tariffs on Chinese goods, causing a downturn in new orders and subsequent output cutbacks across the region. China responded with fiscal stimulus measures to ease tax burdens on manufacturers, which helped soften the decline and, more recently, lift production levels.

  • 17 Nov 19
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Bardoc Gold Limited (ASX:BDC) - Western Australia,

CONSOLIDATION CONTINUES TO DELIVER Since the October 2018 merger with Excelsior Gold, Bardoc Gold Limited (“Bardoc”, or the Company) has continued to make major progress on the 100% owned Bardoc Gold Project (“BGP”), located north of Kalgoorlie in Western Australia. The current Project area, located within the highly prolific Eastern Goldfields of the Yilgarn Craton (one of the world’s premier mining districts), is the result of the ground consolidation undertaken since 2017, with the Company now working towards a Pre-Feasibility Study (“PFS”), targeting a standalone operation with a central mill - this is due for completion in Q4, 2019. A key component is the recently updated Mineral Resource Estimate (“MRE”) which has incorporated the results of ~40,000 m of post merger infill and extensional drilling that has continued to provide strong results from the various deposits. The upgraded MRE of 49.4 Mt @ 1.9 g/t for 3.02 Moz (with 60% in the Measured and Indicated categories) represents a 17% increase on contained ounces from the November 2018 MRE, itself an increase of 23% on the combined Resources of the pre-merger projects. The large, robust Resource base is key to underpinning Bardoc’s plans of developing a standalone gold mining and processing operation - although there are a number of mills that could provide toll treatment in the region, such arrangements tend to favour the mill owner rather than the miner. The three cornerstone deposits, Aphrodite (1.68 Moz), Zoroastrian (0.515 Moz) and Excelsior (0.320 Moz), which all have increased Resources, are located 30 km apart within the Bardoc Tectonic Zone (“BTZ”), and within 100 km of and to the north of Kalgoorlie in Western Australia - the Company is looking at both open cut and underground operations at these deposits which will form the backbone of planned operations. The Project also includes a number of satellite deposits, particularly around Zoroastrian, in what was termed the Kalgoorlie North Gold Project (“KNGP”) by Excelsior, and centred over the historic Bardoc Mining Centre - one recently acquired tenement hosts the Slug Hill deposit, which was reportedly, at 23.5 g/t, the highest grade producer in the field. We will refer to this area as Kalgoorlie North to differentiate it from other areas, although this is not a name used by the Company. Also in the mix is Bardoc’s 79 koz open pit Mulwarrie deposit, located some 65 km west of Aphrodite near the Davyhurst Mining Field. Most recently the Company has acquired the Mayday North and North Kanowna Star prospects - these are located to the east of the main BGP area, which added 111,600 oz of JORC compliant Resources to the BGP. Ongoing activities will provide good newsflow over coming months in a time of high appetite for gold stocks and historically high Australian denominated gold prices, and should result in value appreciation. News will include progress on the PFS, and in addition ongoing drilling, particularly in regional exploration and evaluation of satellite deposits, should continue to deliver results. KEY POINTS Successful consolidation: The mergers and acquisitions have consolidated the highly prospective BTZ, resulting in a large mineral inventory that should be sufficient to support a long term, robust standalone operation. Cashed up: Having just raised A$15.2 million through a placement and oversubscribed SPP at A$0.10/share, the Company is well cashed up to fund ongoing activities. High quality Resources with upside: The Resources of the individual deposits appear to be of a quality to support the planned mining styles, be it open cut or underground; in addition a number of these are open along strike and/or down dip hence there is the potential for Resource expansion. Ready access to infrastructure: The Western Australian projects have ready access to power and transport infrastructure, and a resident workforce and services in Kalgoorlie. Stable, well respected mining jurisdiction: Western Australia is a well regarded mining destination, ranking 1st in Australia and 2nd globally in the 2018 Fraser Institute Survey of Mining Companies. Positive outlook for gold: Our view, given global economic conditions and geopolitical factors is that the Australian denominated gold price will remain at around current historically high levels or higher for the foreseeable future. Strong management and technical team: The Company has management and technical personnel with extensive experience in the junior resources sector, and a proven history of technical success and delivering value to shareholders; in addition key personnel currently hold ~11% of the Company, thus aligning their interests with those of other shareholders.

  • 15 Nov 19
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The Long Awaited Gold Breakout

The Long Awaited Gold Price Breakout “You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.” — George Bernard Shaw. We’ve witnessed an extraordinary breakout with respect to the price of gold over recent months. The yellow metal broke out above its critical level of technical resistance during the month of June, rising above the high reached during July 2016 of $1380 per ounce. Importantly too, it has managed to remain well above that level. Gold’s robust recent performance has been driven by a confluence of factors - all positive - including falling interest rates, fears about economic growth, political instability, and uncertainty surrounding the ongoing trade war between the US and China. There have been other factors too, such as geopolitical concerns, including unrest in Hong Kong as well as the recent attack on Saudi Arabia’s oil facilities. After reaching the $1550 per ounce mark during early September, the gold price has consolidated somewhat, which is entirely rational, but has remained firmly above the $1450 per ounce level. The bottom-line is that investors and traders have moved strongly towards gold, reinforcing its traditional role as a safe-haven during times of political and economic uncertainty. It can be argued that the bull market in gold began at the start of this century. Ironically, following the Bank of England’s decision to liquidate half of its gold reserves at prices as low as $250 per ounce, gold’s recovery began. A far cry from the days of the Bank of England and Australia’s Reserve Bank selling vast volumes of gold reserves, central banks around the world these days are net buyers of the metal, at price levels six times higher than where the Bank of England sold. Central-bank accumulation of bullion has emerged as an increasingly important trend in the global market, offering additional support for prices that have rallied to the highest level since 2013 on rising demand. Authorities have been adding to reserves as growth slows, trade and geopolitical tensions rise, and some nations seek to diversify away from the dollar. Official purchases now account for about 10% of worldwide consumption, The Peoples’ Bank of China added a further 6 tons to its gold reserves during the month of September. This represents the tenth consecutive month of gold purchases, with the nation’s gold reserves now standing at 1,948t at the end of September. So far in 2019, China has added 95.8t of gold to its reserves. Meanwhile, the total Assets Under Management (AUM) of Chinese gold ETFs reached 17 billion yuan or US$2.4 billion as at the end of September, a new all-time record. As of 30th September, holdings of China’s four gold-backed ETFs’ totalled 50t, a 3.5t month-on-month rise. Chinese gold ETF investors tend to be more sophisticated and longer-term oriented, thus treating any dip in the gold price as an opportunity to expand their gold allocations. In all, the world’s central banks added 374.1 tons to their holding during the first six months of 2019, helping push total bullion demand to a three-year high. The trend is expected to continue, with a recent survey of central banks showing 54% of respondents expect global holdings to climb in the next 12 months. While the central banks of emerging nations have provided gold price support through their purchases, many of the central banks from the world’s biggest nations have provided gold price support through their policy actions – specifically debt. Gold’s best friends remain the world’s debt-addicted central banks. What started out as a temporary post-GFC measure to try and avoid international economic catastrophe, has now morphed into a dangerous addiction. It has now become a seemingly-permanent means of keeping the international economic wheels turning on a day-to-day basis. Keeping rates low for several quarters is a very different situation from keeping them there for years. What has transpired is that the low-rates scenario has unintentionally punished savers and distorted market prices, in turn encouraging enormous and destabilizing financial speculation. Furthermore, central bank policies of inducing negative real rates to effectively ‘incentivize’ borrowing has expanded the money supply and devalued currencies – in turn forcing investors to chase riskier assets in order to generate returns. It is little wonder therefore that investors are increasingly seeking refuge in gold. Base interest rates in industrialised nations have remained low since the financial crisis of 2008. Frequently throughout this period the rate of inflation has been higher than this, implying a loss in spending power over time for each unit or currency. In the USA, the August 2019 inflation reading showed that ‘core’ consumer prices (excluding volatile food and energy prices) rose to an 11-year high of 2.4% growth year-on-year. Not since September 2008 have prices expanded so fast and this doesn’t include the effects of the 15 tariffs on $112 billion in Chinese goods that the U.S. imposed on 1st September. Conclusion Gold’s robust recent performance has been driven by a confluence of factors - all positive. Right now, gold markets are in a consolidation phase following its strong run from below $1300 in June to a high of $1550. One of the persistent arguments against owning gold is that it “does nothing.” Unlike cash that earns interest, gold is a non-yielding asset. However, in today’s world of close-to-zero and negative interest rates, the old-fashioned notion that favours holding cash over gold is increasingly defunct. Encouragingly too, gold’s ascent has taken place against a background of US strength (typically a negative for the gold price). Gold is likely to continue to trade between $1450 and $1550 in the near-term. Disclaimer: Under no circumstances have there been any inducements or like made by the company mentioned to either IIR or the author. The views here are independent and have no nexus to IIR’s core research offering. The views here are not recommendations and should not be considered as general advice in terms of stock recommendations in the ordinary sense.

  • 13 Nov 19
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Navarre Minerals Limited (ASX: NML)

VICTORIA’S GOLDEN COMEBACK Navarre Minerals Limited (“Navarre” or “the Company”) is one of the pioneers of Victoria’s gold renaissance having been an early mover to access quality exploration acreage when the competition for prospective ground was less intense. Within its project portfolio, Navarre is generating considerable exploration success, including discoveries at Irvine and more recently at the Langi Logan gold prospects within the broader Stawell Corridor Gold Project (“SCGP”) as well as at Tandarra, along the Whitelaw Fault Corridor north of Bendigo. Although early days, these discoveries have returned excellent results and have good potential to be converted into gold deposits with ongoing drilling. In addition, Navarre has identified a pipeline of prospects that, with targeted drilling, have the potential to result in further quality discoveries. Victorian gold is now in focus on the back of the exceptional performance of Kirkland Lake Gold’s (ASX:KLA, TSX:KL), Fosterville Gold Mine (“FGM”, 7 Moz gold endowment) which is on track to produce 550,000 – 600,000 ounces of gold in 2019. Recent drilling at Fosterville has defined the Swan Zone, with Reserves of 588 kt at an exceptionally high 61.2 g/t Au for 1,156,000 oz, highlighting the opportunities that still exist in the Victorian goldfields. Gold mineralisation in Victoria, which has historically produced some 80 Moz, is orogenic in style, similar to that in Western Australia, with Navarre targeting mineralisation similar to that at the Stawell Gold Mine (“SGM”, 4 Moz historical production) and Fosterville. These deposits are characterised by relatively continuous gold grades, unlike the highly nuggety Bendigo and Ballarat mineralisation that is commonly associated with Victorian gold deposits. Gold in Victoria occurs along a number of distinct structural trends that extend under younger cover to the north and south of the exposed gold-bearing basement rocks. Navarre’s strategy has been to peg ground under areas of shallow cover along these trends, with most of these areas having had no previous exploration. Tandarra is an example of one of the Company’s discoveries made under cover, with this now part of a Joint Venture with Catalyst Minerals (“Catalyst”, ASX: CYL, market capitalisation of A$193 million). Results of first-pass shallow aircore drilling at the Glenlyle Project (“Glenlyle”), targeting epithermal, VMS and porphyry mineralisation have been positive, intersecting elevated silver and gold within broad alteration envelopes. Glenlyle is situated over an interpreted intrusive centre hosted in the same broad Cambrian magmatic arc that hosts Stavely Minerals (ASX: SVY) Thursday’s Gossan porphyry discovery. Stavely’s recent discovery of high grade massive sulphide copper-gold lode style mineralisation at Thursday’s Gossan (with an intersection of 32 m @ 5.88% Cu, 1.00 g/t Au and 58 g/t Au) has shed new light on Glenlyle (which will be re-evaluated), with massive sulphides intersected in the drilling that discovered the 150 m wide zone of silver-gold-base metals under shallow cover. Navarre is set to commence an expansive drilling program in the Stawell Corridor, which is expected to contribute towards Navarre’s first Mineral Resource. This will include deeper diamond drilling at the Adventure and Resolution gold discoveries at Irvine and expansion aircore drilling at the more recently discovery Langi Logan prospect. KEY POINTS Highly prospective holdings: The Company’s projects are located over areas with a long history of gold production, and along strike or adjacent to historic and/or currently producing mines. Exploration success: Work to date has confirmed the prospectivity, with a several new discoveries being made; there still remain a number of prospects that need to be tested, and thus there is the chance for further discoveries. Well served by infrastructure: All projects are in areas that are well served by infrastructure, and with ready access to skilled personnel. Experienced personnel: Company personnel have extensive and successful experience in the resources industry, including in operational, technical and commercial roles; this includes experience operating the 4 Moz Stawell Gold Mine in western Victoria. The Board, which is comprises all the founding directors of the Company, has a major aggregate shareholding in Navarre of approximately 10%, thus aligning their interests with those of other shareholders. Strong and supportive register: The two top key shareholders, Crocodile Gold (an Australian subsidiary of Kirkland Lake Gold, the operator of the FGM) and VBS Exchange (part of The Victor Smorgon Group) have been supportive and have taken part in recent placements. Steady news flow: Upcoming work, including drilling, will result in a steady news flow. Leveraged to exploration success: With a market capitalisation of ~A$38 million, Navarre is well leveraged to further exploration success and proximity to other discoveries; recent Victorian examples have been Catalyst with their Four Eagles discovery near Tandarra, and Stavely’s recent discovery - these have resulted in current share prices of multiples of those pre-discovery, with Catalyst trading at a market capitalisation of A$193 million and Stavely at A$158 million - Navarre has exposure to both the geological terranes that host these.

  • 13 Nov 19
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