Cobus Loots, CEO of Pan African Resources, on delivering sector-leading returns for shareholders. Watch the video here.
Thanks for sharing, I'll have a read!
Any ideas why the drop we're seeing the last few days? I mean the uranium price has dropped a bit on the news about Cigar Lake but it's gone from 32.9 to 32.2. Hardly a big change. Looking at the discount to NAV it's still over 20%. Our share price should be at £2.70.
Anyway, I don't mind. I've managed to pick up a few shares at 214. I'm breaking my rule not to go over 10% allocation on a single investment but there's very little that could go wrong here...
Sherlock, I'm not sure what you're taking about regarding the company valuation and "shrinking" production. Juanicipio is about to come online this year and that mine is 'UGE! 10m oz silver annualy for 19 years!
NPV for Juanicipio is $2.8b at 23 bucks silver and $1450 gold. Fresnillo owns 56% of it. I think that solves your valuation problem!
I'm looking at the number of shares the company buybacks every day and I've noticed a substantial increase yesterday when the price was lower. Normally they buy back 40k shares and yesterday it was 100k. The share price probably would have gone lower without that. I think it makes a lot of sense - support the SP on down days, help it go slightly higher on up days.
I believe the discount to NAV has come down now to 20.5%. It was even lower at some point. The concern is obviously that the uranium price was a bit down yesterday. The market (me including) didn't like at all the announcement about Cigar Lake coming back online in Sep. Obviously no one on this planet knows what will happen with Covid in the autumn, will there be a second wave or not, etc. So I feel we're in a good place here. If everything goes against us, we don't lose money. If the planets align, we're making a ton of money.
So Cameco plans to restart Cigar Lake in September?! Listening to uranium commentators (Brandon Munro) I somehow had the impression that it's in care and maintenance indefinitely.
Looking at our quarterly update we expect a 15% decline of production for 2020 from 142 mlbs to 121 mlbs or 21 mlbs in total. 10.4 mlbs from Kazatomprom and 10 mlbs from Cameco and everyone else. Today Cameco have announced they are targeting 5 mlbs production for 2020. If I'm not mistaken normally they produce around 18 mlbs so that's 13mlbs less. The 20 mlbs less production in 2020 expected by Yellow Cake might increase to over 23 (10 Kazatomprom and 13 Cameco + everyone else). We'll see how the uranium price reacts to these announcements!
What I find really interesting in our update is that we have more or less a confirmation that Cameco are borrowing uranium from Yellow Cake. Here's the quote:
"On 24 July 2020, Yellow Cake concluded a location swap agreement in terms of which it will exchange a volume of U3O8 located at Cameco's storage facility in Canada for an equal volume of U3O8 located at Orano's storage facility in France for a period of six months. The location swap will be reversed in January 2021 when Yellow Cake will again receive the same volume of uranium in Canada in exchange for uranium held in France. In consideration, Yellow Cake will receive proceeds of US$1.0 million, net of costs and commissions."
In other words Cameco gets the uranium now and can use it for their long term contracts for the next 6 months until they can restart Cigar Lake and/or buy on the spot market while their partner Orano covers the pounds for 6 months. What I find interesting is that the amount of pounds isn't mentioned. Since the fee Yellow Cake charge for the swap deal is $1m I'm guessing that it's not an insignificant amount. Anyways, good for us, basically free money haha. I really like that our management has done this deal. Great way to cover some of the G&A costs.
I'm not a TA guy but I'd recommend to listen to some TA experts in the PM space to try and understand the short term movements in the space. The pullbacks in gold and especially silver were widely expected.
The kereport is good place to get info on this. Here's an interview from last week discussing the expected pullback:
http://www.kereport.com/2020/07/22/a-look-into-silver-and-silj-silver-is-playing-some-major-catch-up/
BtB, regarding the price action in silver I'd say that a lot of it might be due to TA. There was a lot of resistance at the 18.50-19 area (11 years, since 2008-2009) and the next level was 21 bucks which was the 2016 high. Once we broke through 19 everyone was expecting the quick run to 21. However, I was quite surprised that we got over 21 so quickly. I'm guessing I wasn't the only one and there was some profit taking above 21. In a way we re-tested the previous resistance of 21 and it held. It's become support now which is bullish.
Disclaimer - I'm not a TA person, this is what I've heard from TA people over the last couple of months. They were all waiting for it so it might have become a self-fulfilling prophecy. But then again who cares, they were right. The other thing they are saying is that the next level is $26-27!!
If it's any consolation the North American silver miners have also gone up at the open and then tanked. Pan American was up 4% and is now up less than 1%. I won't be surprised if it also closes in the red. I even read about some people doing a trading strategy to buy in the pre-market, sell at the open and then buy back before the close.
Personally, I'm not good with this sort of day trading. What really matters to me long term are the higher silver prices and I'm super happy with the breakout. Especially after I loaded on physical silver at the Royal Mint 2 weeks ago. I only wish that I had bought more (sold less haha) FRES as well.
Cyber, great to see the big raises elsewhere in the uranium sector. I think there are 2 reasons why we've seen less of a jump here.
First, we already had 10-15% rise in the last few weeks or so since the new buy backs were announced. In a way Yellow Cake (and Cameco) was leading the rest of the sector.
And second, the size of the buybacks have basically been halved. At the beginning they used to buy 90k shares a day and last few days they bought back only 40k. Since the spot price is flat the buybacks are one of the main reasons why our share price has been going higher and the discount to NAV has been getting smaller.
Monkshood, you were right! It was quite tricky to value!
I had to account for the ramp up from last year's 2.7mt ore processed to the 5mt they are predicting. That gives me though 110koz. I said that would be achieved in 2022. Then I said they would get to the 220koz only in 2026 and left LOM as 15 years. The problem then was that I have the numbers for the operating costs (mining, processing and wages) for last year and for 2.7mt (54koz) and now I have 200koz. So I left wages the same and slightly lowered the processing and mining costs to get to operating costs of $1200. They gave AISC of $1200 and royalties are quite small so that's the number I aimed for. I suspect that my model overestimates the operating costs as for 2019 I had $1500 and they said the AISC was $1400. That's also how I'm accounting for the capex required for the expansion. I wasn't able to find the number for the capex!
Anyway, the number I got for Ravenswood's NPV was $295 or A$425 at $1500 gold. We got $300. Normally operating mines aren't selling at a discount to NPV (0.7 in this case) but in this case there's an expansion to production that needs to happen, i.e. there's a development aspect to is, and this is an optionality play basically. If I lower the gold price to $1400 suddenly the NPV drops in half to A$200.
Funky, as a contrarian I'm also feeling a bit uncomfortable investing in gold when it's at all time highs. That's why I like FRES, its share price was 50% higher when gold was $1350 and silver was $16. We just need to wait for the company to deliver and get Juanicipio to commercial production and we should see great returns here regardless of what happens with the POS and POG.
I've done my own valuation model using the numbers from the 2018 study (LOM 11 years, ore processed 1mt/year, grade 3.6, recovery 89.9%, 3% royalty to account for the $64m for the government, operating costs $645/oz):
https://www.miningnewsfeed.com/reports/ResoluteiMining_Bibiani-FSUpdate_07132018.pdf
Using gold at US$1500 I get US $264m NPV. That said, I don't think $RSG.AX is going to get anything like full NPV for the asset. Developers trade at what, Average 0.5 of NPV? So that gives us US$132. Probably should apply an Africa discount to that too, so 0.6 of NPV. That's US$105.
At the same time an excellent project like Orca gold's is valued at US$70m atm (that's the company's market cap) and it has roughly the same resource size. Okay Sudan is probably worse than Ghana but still. So anything over US$100m might be a bit of a stretch but I feel we might be able to get $90-100m.
Monkswood, our suspicions have been confirmed, we're planning on selling Bibiani! Here's an interview with the CEO:
https://www.miningmx.com/top-story/42417-resolutes-welborn-expects-to-divest-of-ghana-mine-bibiani-in-2020-despite-covid-19-delay/
Basically the main argument is that 100k oz production per year isn't big enough.
What's funny is that I checked for an RNS this morning and there wasn't one. At the same time they broke the news through the media yesterday. Personally, not too happy about that but at the same time I'm glad we're getting rid of Bibiani. I wasn't impressed by the asset from what I saw. Hopefully we can use the cash to buy something nicer!
Cheapskater, that's a brilliant post, thank you! I've observed the same myself regarding analyst price targets but I had more of a feeling for it. I've never seen it put into words until I read your post.
I also do the opposite to what the analysts are recommending. Let's say that the share price of company A is £10. An analysts puts 'Buy' on it and a 6 month price target of £12. The share price jumps 5-6% the first day and quite often goes to the target (£12 in this example) over the next few days. I usually gradually sell into that but keep my core position. Once the buyers exhaust themselves the share price goes back to where it was in most cases and I can buy back my shares.
I've heard people say that in a bull market the stocks lead the metal and not the other way round which is what we're more used to from the long years of the bear market in PMs. I've also heard people say that silver should outperform gold and perhaps one could argue that we've seen some of that but I'm not 100% convinced yet.
Anyway, the way I see it, the fact that gold stocks are up on a flat day for gold is a very bullish sign.
Hi grouchomarx,
Cameco need to deliver uranium pounds into their long term contracts while shares in Yellow cake is just that - shares in a fund. I think unless they buy out the whole company they won't have access to the physical uranium just like you and I can't go and collect 3 pounds of yellow cake for every $100 of shares we own.
That raises the question why don't they buy the whole company? It's technically possible but I doubt the team at Yellow Cake will be happy doing all that work just to gain 40-50%. Most predictions are that uranium prices will go to $40-50 a pound in the next several years. Their average is $21 I believe so they are probably aiming at 100% return. That said, I think insiders own 9% of shares and there are 3 funds that own another 12-13%. I believe like with a lot of other uranium companies there are mostly retail investors here which could help Cameco take over the company. That's also my explanation for the market inefficiency with the current discount to NAV.
One final point, I've heard rumours that Cameco could lend the pounds from Yellow Cake and return them at a later date plus perhaps paying a fee. Haven't seen any official confirmation of that though and not sure whether it has to be disclosed by the company or not.
Some comments that Resolute could take out Tietto Minerals (ASX:TIE):
https://spotlightmining.com/blog/the-kangari-african-round-up-6/