European Lithium

Becoming a serious company. Tanbreez is a world leading REE deposit. CRML breaks 3 month downtrend.

• CRML share price breaking out technically from 3 month downtrend
• CRML becoming a leading US-based critical minerals company
• Acquisition of world leading Tanbreez REE deposit is a master stroke
• Proposed Lithium Refinery in Saudi Arabia with Obeikan Investment Group - negotiations soon
• Saudi Arabia’s industrialisation program delivers <US$0.048/kWh electricity
• BMW US$15m prepaid lithium supply funds received by CRML
• EUR will be taken along

EUR is also acquiring the high grade Leinster lithium project in Ireland for US$10m paid with 1.23m CRML shares

• Market cap A$68m on 1,398m shares at A$0.049.
• MPS assessed market value is A$0.67 today.
• Appraised value A$1.14.
• The pieces are coming together for EUR for it to be now taken as a serious company.
• The listing on NASDAQ of CRML has given EUR a vast balance sheet to pursue developments of its lithium and now REE assets.
• Despite the naysayers, CRML is well placed to become a key part of important US indices and the acquisition of Tanbreez should provide a significant re rating.

BMW has contributed US$15m to the Wolfsberg Lithium Project and Saudi Arabia is encouraging resources development using its world class new infrastructure and low cost energy inputs for the lithium refinery.

Saudi-based Obeikan Investment Group is proposed JV partner.

Obeikan is one of Saudi Arabia's top 100 companies with more than 3000 employees and offices in 16 countries.

Saudi Arabia has been encouraging industrialisation and resource development under its Saudi Vision 2030 plan to reduce reliance on oil revenues.

A good example of this is the current Saudi drive to invite Australian exploration and development expertise to Saudi Arabia’s Archaean Nubian Belt.

Saudi Arabia is rewarding discoveries by offering 75% debt funding for capex, low energy costs (ultra low gas prices into electricity generation) and 2-3% interest rates for new mining development projects.

Obeikan Investment Group would be well placed to assist in utilising these available incentives.

Note the extent of Saudi Arabian Infrastructure described here.

All those oil revenues have been building a powerful infrastructure base for Saudi Arabia.

• Roads  73,000km
• Railways  4,500km
• Seaports 10 sea ports
• Airports  28 Airports

Industrial activity is significant in Saudi Arabia.

1  The MODON (Saudi Authority for Industrial Cities and Technology Zone ) administers 35 Industrial cities with over 3,500 factories.

2 The Royal Commission for Jubail and Yanbu (RCJY) has four enterprise zone cities to develop energy related projects.

3 Saudi Arabia also has The Economic Cities Authority overseeing three private sector owned economic zone cities.

The installed infrastructure of power and utilities extends across the Kingdom and offers internationally attractive costs structures.

Note power costs of US$0.048/kWh for normal businesses and for energy intensive businesses, like lithium refining where power costs are >20% of operating costs, the rate is just US$0.032/kWh.

These are far cheaper than European costs of >Euro$0.20/kWh  ( US$21.6/kWh).

Annual Electricity Prices (incl taxes) for Industrial Businesses in Germany.  (Euro cents /kWh)          Source: Statistica

The Lithium Refinery in Saudi Arabia is very real for CRML.

It is also becoming clearer that long term availability of higher grade spodumene for lithium extraction is far more limited than realised and most other non-brine lithium sources are uneconomic.  

TANBREEZ

Tanbreez is one of the world’s most important REE deposits and its location in Greenland (part of Denmark) makes it European and more importantly non Chinese.

• China produces 60% of the world’s primary Rare Earths output
• China processes 87% of the worlds REE concentrates
• China produces 91% of the world’s refined REE metals

All other REE deposits just pale into insignificance against Tanbreez.

• 28.2mt of TREO.
• 10x Lynas’s resources.
• 400m thick, at surface and it is the coastline.
• Market cap (green) and total TREO resources (blue).
• TANBREEZ dwarfs them.

Tanbreez is 27% Heavy REEs which are the most valuable.

CRML is now being rerated.

Pass through value is very attractive for EUR.

CRML closed at US$11.53 on Friday 14 June and broke a three month downtrend.

Over A$0.60 per EUR share fully diluted.

The yellow shading is likely to be moving to the right.

Almost US$12 and A$0.66 for EUR.

Don’t miss out.

Leinster Lithium Project

EUR is in the process of acquiring LHR Resources which is the 100% owner of the Leinster Lithium Project.

The project is situated south of Dublin in the Leinster Granite Massif within the same key tectonic zone and along strike to the Blackstairs Lithium (Ganfeng / ILC joint venture) Avalonia Project.

The Leinster Lithium Project is subdivided into a North Leinster and a South Leinster Block.

The North Leinster Block consists of 15 prospecting licenses covering an area of 477 km².

The South Leinster Block has 8 licenses covering 284 km².

Each block contains several developing prospect areas where significant lithium bearing spodumene pegmatites have been located in surface sampling and more recently in diamond drilling on PL 1597.

Grades over 3% LiO₂ have been encountered.

Gangfeng’s Blackstairs Lithium Avalonia Project within the red circle sits between the two Blocks.

EUR will acquire the asset through the sale of 1.23m CRML shares for US$10m.

Completion of transaction subject to usual due diligence.

The MPS Valuation Matrix

Key assets

• CRML (83%  reducing to 82%)
• Tanbreez (7.5%)
• Lithium Ireland acquisition (paid for with 1.23m CRML shares for US$10m)
• Cash from exercised options in dilution process.

Market value today A$0.67 and A$1,253m.

Appraised Value A$1.14 at A$2,073m.

EUR downtrend broken.

Rally to A$0.09

Break of downtrend gives >A$0.40

Longer Term Technicals

A rise above A$0.065 would put EUR back into the long term formation after the false breakdown.

Break out is > A$0.14.

Bigger target is > A$1.20.

Key Points

• Gold heading to US$1600 and higher
• Silver ready to move
• ASX ETFs available
  • for Gold (Gold.asx)
  • Silver ETPMAG.axw
  • GDX.axw
• World Gold Council data for 2019
  • Gold ETFs bought net 325 tonnes to record 2885t
  • Central banks were net buyers for 10th consecutive year with 650t to 34,500t
  • ETFs and Central Bank purchases offset decline in Asian demand
  • Gold mine production fell slightly (-1% to 3463)  – first decline in ten years
  • Scrap supply increased with higher gold price
• US jewellery demand grew 2% to 10 year high of 131t.
• A$ gold hits new record high A$2370/oz
• JP Morgan probe into gold price rigging could result in gold moving higher
• Gold stock technicals also very constructive
• US$ and global equities heading higher
• Decade of Prosperity ahead -  MUST WATCH video link https://www.ccmmarketmodel.com/short-takes/2020/2/8/the-most-important-stock-market-and-investing-video-you-will-ever-watch
• Gold is becoming Metal of Prosperity
• My latest Proactive video https://youtu.be/25Rmc8q-acw

Call me to participate:
bdawes@mpsecurities.com.au
+61 2 9222 9111

Gold is a many splendoured thing and means different things to different people.

Concerns over debt, the Coronavirus or an overvalued stock market could be reasons for higher gold prices but I still consider gold now to be the Metal of Prosperity.

Asian demand is from rising prosperity and sales to Asia from the West represents a short position for many banks. The probe into JPMorgan gold price rigging may force cover of these short positions, especially in silver.

ETF and Central Bank purchases of gold in the Dec Half of 2019 offset declines in Asian demand but rising prosperity in the US pushed gold jewellery demand to the ten-year highs.

The US is experiencing a momentous acceleration in its Trump Blue Collar Boom. Just watch employment, housing and autos (the coming EV boom).

Economic Confidence Index is at the highest level in almost 20 years.

This long term demographic/technical graphic shows the US market is in the early days of a major bull market.  Demographic changes are driving it.

Capital flows are showing bonds have peaked and are flowing into equities.  And Property and commodities and gold.

Watch this video!!

Gold has continued to move higher in all currencies and achieved Friday monthly close on 31 January at US$1588.

The technical setup is for gold to now move higher in the near future.

US$1600 is an important level so a break above this should see gold rise almost US$200 to around US$1775 in a reasonably short time frame.

Moves to US$1800 are likely in 2020 and the previous high of US$1923 might be met or exceeded this year.

The longer-term picture is for a much higher gold price than this.

Gold in A$ is moving higher and the technical are suggesting a coming move into the next channel.

Gold can be traded using the ASX-listed ETF GOLD.ASX.

Silver is also setting up for continuation higher after its strong move in Sept last year.

As with gold, the long term pattern is suggesting a move that will take silver above its 1980 and 2011 high of US$50/oz.

Silver can be traded using the ASX-listed ETF ETPMAG.AXW

World Gold Council Data

The recently published 2019 data from the World Gold Council provided some interesting market trends.

Gold-backed ETF holdings reached an all-time high in Dec Qtr 2019 at 2885 tonnes, up 325 tonnes. 

Europe now has almost as much in gold ETFs as the US.

Gold in Euros seems to be ready for a strong move as well.

The Euro still looks very weak to me and so the US$ will remain strong.

The US$ Index seems to be now ready to move higher.

Central banks were net buyers for 10th consecutive year with 650t to 34,500t and this gain, similar to

that in 2018, was the most in 50 years.

World Gold Mine production was 1% lower at 3463 tonnes and the first mine output decline in ten years. 

Interestingly, this data shows the rate of change of gold production has a declining trend.

China has been declining from a record 453 tonnes (453,00kgs here) to 420 t but these figures may be optimistic.  Peru gold output fell 9% in 2019.

Gold production in China has been from numerous small mines so the longer-term production is not assured despite official forecasts.

Other major gold producers Australia, USA and Russia were marginally higher.

Production costs as measured by AISC figures are rising again but this is more likely to be a function of declining cutoff grades rather than input factor costs.

On this graphic, ~6% of global gold production is still loss-making basis AISC data.

Recycling rose 11% to reflect the higher prices bringing out scrap.

The data showed gold in Indian Rupees drew out some selling.

Gold stocks

Gold stocks in North America continue to consolidate and after breaking through some technical resistance should move sharply higher again.

The unhedged HUI index is constructive.

The Philadelphia Gold Index has major long term resistance at 110 so a breakthrough this soon into 2020 will provide an acceleration to 150-170.

The GDX ETF seems to be tracking the XAU but may be stronger.

This GDX is tradable on ASX under code GDX.AXW.

Also, a North American Goldstock portfolio BetaShares ETF MNRS.AXW (non ASX companies) is available on ASX.

Individual stocks like Newmont

And leading royalty company Franco Nevada, are doing well.

Overall, Nth American Gold stocks are now breaking upwards against the  S&P 500.

And looking very positive against gold itself.

Here in Australia the ASX S&P Gold Index looks very constructive. New highs above 2011 were seen in 2019 but the Index (~39% NCM) has pulled back to good support where the 2 December Dawes Points BUY NOW was issued.  Once XGD breaks out to new highs a strongly accelerative action is likely to take place.

NST is well on its way to A$20 and beyond.

And NCM is far too cheap.  Haveiron will be a real winner for NCM by converting Telfer from a marginal operation to a long life very profitable mine.  Recent rains should also remove any concern for water for Cadia.

ASX gold stocks are very cheap now.

All these constructive technicals for gold and silver ( and platinum ) are telling me the artificial down pressures on gold are being removed and a significant revaluation is coming.

But this and so much else is also telling me that US equities and hence global equities are looking very strong for at least a decade.

The massive over-commitment to bonds to ~US$110tn will provide capital flows to equities and commodities for the next decade.  

Call me to participate.

Barry Dawes BSc F AusIMM(CP) MSAFAA

Executive Chairman
Martin Place Securities

+61 2 9222 9111
bdawes@mpsecurities.com.au

10 February 2020

Dawes Points #95

I own, or have in controlled entities, all the stocks.

Gold prices surge to new six-year high

Key Points

• Gold rallies to US$1610 – short term high?
• ASX Gold Index has broken 2019 downtrend
• Gold stocks moving higher
• Small gold stocks starting to perform
• Shanghai breaks downtrend
• New interpretation for the gold market.

ASX Gold Index breaks short term downtrend

The bigger picture shows last month’s 'BUY NOW' call was spot on.

The A$ gold price is higher and is cementing its position above A$2100.

Exploration expenditure for gold is at a new record high.

Many small gold stocks are starting to perform.

Australian gold production is strong but off slightly in Sept Qtr 2019.

Although Iran is in the news today and gold went through US$1600 I am not convinced it is rising due to safe-haven demand and a general need to protect against market failure.

No doubt Iran has helped gold rise recently but I see a bigger picture.

Global equity markets are still strong and are anticipating an expanding global economy.

Reviews of so many US subsectors and global markets show some important and very positive changes are underway in the world.

The Dow 30 is strong and is indicating a boom to last for years.

Calls for a weaker US$ don’t make sense to me.

The strength in gold to me is confirming the strong underlying demand from Asia that has been fed by banks in the West that have gone short to deliver.

With US prosperity increasing, the demand for gold is rising so the banks are left with a major short position they need to cover.

This will be the driver in gold prices to much higher levels.

Gold is becoming not the crisis metal but rather the prosperity metal!  

Call me to participate (and don't forget to subscribe to Dawes Points).

Barry Dawes

+61 9222 9111

• Macro environment is very encouraging
• US T bond market now in high-risk state
• Technical indications show US$ gold correction over
• Gold in Euros and A$ looking to break out
• US$ holding up, Euro still vulnerable
• Gold stocks in Nth America breaking out again
• ASX Gold index bottoming after 23% pullback
• South East Australia Gold Mining Renaissance underway
• Its buying time again
• Comments from Proactive Investors video from 20 November

The fundamental factors for supply and demand for gold are, as repeated here often, many and varied so one perspective on debt, currency, COMEX market manipulation, monetary expansions, inflation, wars, economic turmoil or central bank holdings is good as another at any one time and the issues must all settle down as just a matter of buyers and sellers. 

Who are the buyers and who are the sellers?

This is unknowable from week to week but if we come back to the @DawesPoints view of Asian buying and the West having sold and now considering to restock there is a very powerful argument for a continuing sharp rise in gold prices in all currencies.  

Also, a strong economy will bring strong demand for gold through jewellery and maintaining insurance proportions of growing asset portfolios.

In the end though, we are all reliant on some form of technical analysis to ascertain what the millions of gold buyers and sellers are doing.  There are so many different styles of technical analysis out there and many excellent exponents of their crafts.  Most try to catch each move but at the end of the day, it needs to be recognised that this is a very long term bull market and we only need to get right the major moves and turning points.  

This means we don’t get to sell all holdings at an index high but it pays to hold on to the key stocks like CYL that just continue to make new highs.  And hold on to key stocks like NST, KLA, EVN, RED, TGM and TBR.

The @DawesPoints Global Boom TM is still well on track and is being led by the US equity market where we are witnessing the Panic Buying discussed here so often, despite the occasional pullback.

This @DawesPoints positive outlook on the US economy, the US equity market and the global economy hasn’t wavered over the six years of this newsletter’s existence despite the gyrations in all the major commodity, equity, bond and currency markets over that time. 

The fundamental factor is the flow of capital.  

The flow of capital from defensive positions in bonds and cash built up since 2008 and the decline in bond yields and interest rates reflects this hysteria that gave such low yields and even negative interest rates that in hindsight will truly be seen as the Scam of the Century. 

Bond yields have bottomed here.

So bond prices are falling.

Rising yields and falling prices.  Risk is rising rapidly.

This flow of capital out of these defensive positions into equities commodities, property and gold is only just starting and has many years to run.

Much is made of the supposed impending doom of the US$ because of all its debt but the markets are telling us something quite different.

The US$ continues to rise.

DawesPoints has been agnostic here because the US$ has been steady on this index for almost five years and rising against most other currencies outside this index.

But the Euro, with a 57% weighting here, looks quite precarious technically and Brexit is likely to remove the second-biggest economy and leave the other 27 and six hopefuls sucking on the teat of a bankrupt ECB.  And the ECB intends to bring Climate Change into its policies to further add to Eurosclerosis.  The UK Election is 12 December.

There is no technical support in this graphic for the Euro in the short term.

And nothing here in the longer term.

The Euro is the King of the fiat currencies.

On another note, the US$ might be hinting that the Trump Era will do what no man has done before:- halt the ever-rising budget expenditure affliction gripping the world.

The Impeachment Investigations clearly show a complete disregard for facts and due process and have brought out the massive cost of a bureaucracy intent on having very nice lives on the public purse.  The public is starting to see the largesse in Foreign Aid and who are often the beneficiaries at the expense of the average taxpayer.

Those with inquiring minds could well do to access this and read `Here’s The Plan’ set out in the latter half of this opinion.

This could work a treat and save us from all that potential hyperinflation that would otherwise occur.

Something similar should be put intrain here in Australia.

So to Gold.

Asian economic growth continues despite all the negative commentaries and we see it as new highs in the Indian stock market and also in Taiwan with China still holding on.

Growing demand for gold is still with us despite short term variations.

Keep in mind a strong US economy will boost US jewellery demand and for gold as a share of rising portfolio values.

Gold in US$ had run to US$1566 in September and has had around three months (depending on how you view it) of consolidation and has pulled back to a low of around US$1446 giving a US$120 decline.

Interestingly, an uptrend line from Dec Qtr 2015 picks up US$1450 and this also ties in with trading around US$1450 levels in 2013.

Note too, that gold dropped over US$400 in the three months to late June 2013.

This could work in reverse with gold jumping US$400 over the next few months once the correction is over.

The long term gold price chart picks up this 2016 uptrend and shows its strong roots in the 1999-2001 lows.  Nice!

The Gold price in Euros is looking good to me and seems ready to shoot higher.  This may relate to that 12 December UK Election

Gold Stocks

Watching the technicals of price action of gold in US$ and also in other currencies helps a lot.

Watching gold stocks helps even more.

The Philadelphia Gold Index is the key index to watch.  It has already broken out of its wedge and is showing leadership.

The XAU is actually leading the GDX Gold stock ETF out of the blocks but GDX is outperforming overall.

Key market leader Barrick is very well positioned for a sharp upmove soon.

Newmont is also ready but with a different pattern.

And the royalty companies are doing even better.  And maybe ready to jump into a new trading channel.

A global exploration stock ETF GOEX provides another perspective for smaller companies.

We can go on all day with Nth American opportunities but this is where we are now with ASX gold stocks.

The Australian gold industry continues to grow its output and is on its way to 350tpa.

The quarterly data shows the strength.

Whilst WA is recovering it is NSW and Victoria that are providing the growth in output.

This shows the renaissance in gold mining in SE Australia as detailed in my recent Symposium presentation.

Interestingly we now have around 75% of Australian gold production from underground with Northern Star achieving outstanding mining productivity in its mines, Newcrest is one of the lowest cost major mines,  Kirkland Lake’s Fosterville is currently the world’s highest-grade major mine (632,000ozpa @ 41.8g/t in Sept Qtr).  NST has superior operating stats and Newcrest is a world leader in high volume block cave mining.

For the ASX S&P Gold Index, this looks like a massive inverted head and shoulders with a neckline at about 6000.  The Index in August 2019 made a new high above the 2011 high and is simply pulling back to the neckline but an uptrend from 2012 is likely to keep the XGD above 6000. 

Interestingly, those ~25% pullbacks seen throughout the 2000-2008 bull market is coming in here too.

Enough is enough!

And gold stocks have retreated against gold back to around 3.1x (but mostly through Newcrest with its 45% weighting in XGD).

So looking at the stocks let’s see what is afoot.

The leaders have made outstanding achievements in their local operations and have taken their expertise, technologies and balance sheets to opportunities in North America.

Northern Star with Pogo, Newcrest with Red Chris, St Barbara with Atlantic Gold and now Evolution with Campbell RedLake are showing the world their skills of underground mining.

This is a very long gold bull market so these companies have many years to accommodate these new assets and get the type of returns seen in their main Australian operations.

It was noteworthy that incoming Barrick CEO Mark Bristow said that his RandGold managers all had technical competencies and business qualifications as well.  He also said the Barrick managers had only technical qualifications.

The global opportunities for Australian companies are very large from here. 

NCM – Perfect pullback.  No downside here!

NST – Still Moonshot.  No downside

EVN  - Tightly managed operations – Next growth phase – No downside

SAR – Tightly managed.  Next growth phase

SBM – Next growth phase  Already punished into excellent value

RRL - Still growing

SLR – Steady as she goes

RMS  - The quiet achiever   Over delivers

TBR – Still value here.  Hidden assets

Smaller stocks provide excellent value

The Africans are coming together now

RSG 

PRU   -  Growing nicely

CDV  - Biggest discovery in the Birimian in over 20 years  - 7moz   So cheap!

TGM  - Huge potential and near term production

Victoria is getting very exciting for us now with:

CYL - Hancock now 15%   A$10 target still in place

KLA  -  Fosterville is outstanding.  Buying opportunity now

KZR - Chasing up Castlemaine

CHN - Well cashed up

WA Players

RED - How big might this be?

BLK - Down but not out

BGL - How big might this be?

NTM  -  Making good progress

PNR  - Waiting on Norseman acquisition

Some exotics

NVA  -  >2moz in elephant country

NVO.V - This is an extra special stock   Pilbara conglomerates. 

This is an extra special stock   Pilbara conglomerates.  I am a believer.

Call me to participate.

Barry Dawes BSc F AusIMM(CP) MSAFAA

Executive Chairman
Martin Place Securities

+61 2 9222 9111
bdawes@mpsecurities.com.au

3 December 2019
Dawes Points #93

I own, or have in controlled entities, all the stocks.

To have the Dawes Points market insights delivered to your inbox you can subscribe here.

• Choose your gold price
• Choose your discount rate
• And just buy and hold