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-- Posted Sunday, 4 April 2004 | Digg This Article
Despite the strong movements in base metals, silver and to a lesser extent gold, the Australian speculative market continues to drag its feet in comparison to the US and Canada. Companies that have announced encouraging or even exciting news are rallying for all of 20-30 minutes, before another wave of selling hits and the stock ends up closing lower on volume. This activity is hardly going to attract the next influx of “Penguins” as I like to call them, and this has been a major contributing factor to an onset of boredom from those in fundamentally sound situations. Even silver breaking the $8.00 level has been met with a “yawn” as the price action appears to have only provided support as opposed to the onset of rampant speculation. Maybe a move from $5 to $8 is insufficient to warrant mainstream press attention, or is there simply a shortage of journalists out there willing to provide a nickel like feature on silver? My $6.80 upside target for 2004 on silver has been blown away, however I expected that silver would eventually break away from gold and regardless of the speculative inflow, silver is wearing its “Commodity Hat” in the current trading environment. SOME BASIS ECONOMIC OBSERVATIONSI am not one to spend copious hours mulling over charts (Charts in my opinion are an absolute crock), facts and figures but would rather conduct my economic research at the coalface. · The hype surrounding the property market has been turned down to a whimper despite some calls in a newspaper that we are in for one heck of a "bear market rally" as a result of a continuation of a low interest rate environment. My view is that this would lead to a deluge of supply and would be the straw that smashes the camels back.
· The fresh fruit and drink market appears to have only a limited supply of "juice left in the tank". I have enough shopper dockets offering me a free smoothie to survive the next decade.· People are actually lining up at the bowser for the new discount petrol offer from Coles. My local a hundred metres away have never seen such patronage. Chewing gum and tic-tac sales I would imagine have also boomed at this establishment.· When I shop for any items over $20 the shop staff still assume that I will be making the transaction on credit. Some are nearly bowled over when I pay for my shopping and clothes out of my savings account. Maybe the credit bubble can be more subtly and slowly deflated if retailers offered training programs so staff can pronounce "Savings". Still $8m a day is being added to the balance, which for the banks and providers is "priceless".· I recently holidayed on the Sunshine Coast (QLD) and on a Thursday night at a shopping centre that had undergone a major facelift was presented with a smorgasbord of parking options within 30 metres of the entrance. After a doing a rather slow lap (I hate those well placed Big Red Car rides) my first impression was "overcapitalised to the S house". Do not be at all surprised if overcapitalisation becomes the theme for another reality TV show a few years down the track. "Australia’s most stupid renovators" or "The Blockheads"· After speaking to a client who supplies heating products to residential units in Melbourne some confusion over the two laws relating to "Off the plan" buying could well set some very ugly precedents. Many suppliers are overstocked with goods they not be able to dispose of. I would expect to here more on this front.· The "Big Screen TV" market is booming in Australia. Cheaper prices are certainly a lot closer than previously thought, whilst my Foxtel digital ETA is now July instead of October. REASONS FOR OUR POOR PERFORMANCE ON A GLOBAL BASIS · Flood of new IPO’s both in the mining and industrial sectors has siphoned speculative funds into other sectors.· The level of placements and share purchase plans has increased exponentially as companies race the clock to attain years of exploration funding they could only dream about a few years ago.· Many juniors after having attractive structures conducive to significant speculative upside are moving well up the weight scale. For some it would be like running in the "Golden Slipper" with 65kgs on your back.· As stocks retrace from their rolling 12-mth highs technical sell signals and stop losses are being triggered. During last week there was one day where the procession of "Disco" selling was quite alarming. I would be able to easily predict "Which" broker was the one facilitating the panic trade.· Newsletteritis is spreading at a rate of knots. I am now finding Australian based clients reacting hastily to snippets from overseas writers calling for significant corrections. If we had followed the Canadians on the way up fair enough, however looking through share prices this morning many companies are still trading well shy of their 20c IPO prices despite major resource upgrades and price spikes in their commodity mix. Those Australian juniors that have maintained their price hikes e.g DeGrey have done so simply because the story appears to be stacking up. The re-ratings in the oil and gas juniors in particular have been pleasing in terms of their longetivity.· Once prices move there is always the fear of a major collapse and this has made investors and speculators somewhat jumpy. There is an absolute bucketload of funds waiting for a major downturn in the juniors, however with another phase of "weak hand" selling complete apart from a major crash in the US what could possibly drive these stocks from being undervalued to super undervalued?· The mining market participants are still largely uneducated in terms of understanding the impact of drilling results and pre-feasibility and bankable studies. I am sure this situation would be rectified when we have the second coming of the reality TV bubble and we have young, hip, twentysomethings acting as "Celebrity Geoscientists" or "Average Joe attack of the diamond drill crew"· The two major trading brokers on the ASX with the lull in the junior miners are starting to become less discerning with their stock selection. To them it is all about numbers on the screen and we now have other sectors starting to show some signs of life. (Biotechs, techs and nets, diversified industrials)· Apart from Troy Resources (TRY) major gold find at Sandstone there has been nothing in the way of a major gold, silver or even copper intersection. This situation may well change in the near/short-term as drilling activity is set to intensify after the Easter break.· Everyone else is waiting for someone else to do something. Do you ever see women standing in relaxed state outside a shop that is selling bras and underwear at 15% off everything? "The fear of losing 15-20% on paper overrides the potential to attain a 5-10 bagger on earnings potential alone. This is one of the many reasons why 97% fail in the speculative sector." JUNIOR EXPLORATION PORTFOLIO Whilst it may not be reflected in the share prices of the companies I follow and support, I am very happy with the progress made by many of those I included in my “Explorers portfolio for 2004”. It is often the early stages of exploration and the associated success that leads to a handful eventually graduating to producer status and providing three-digit percentage upside. HERALD RESOURCES (HER) 93C +37% Herald is by far my biggest position on the market personally and for my client base, and watching the stock touch the $1.00 mark ranks up there with my all time great moments in broking. Sure in reality the stock has only moved from the low-mid 40’s, however when the latest bout of excitement concerns a project I had largely written off it makes it all the more worthwhile. HER and their JV partner at Coolgardie MPI Mines (MPM) drilled two diamond holes between Empress (current operation) and the old Tindals Lode (previously mined) and hit 10.26m @ 5.6 g/t and 14.87m @ 4.66 g/t gold. Both companies immediately agreed to drill another 5 holes and this program is eagerly awaited. The reason I own Herald is for that beautiful zinc-lead-silver deposit in Nth Sumatra, the 60% lead and 1200 g/t silver samples 30kms away, the potential at Meluak (early signs of another Martabe or Yannacocha perhaps?) and management that have only completed two placements in ten years. Their presentation at the 2004 RIU Conference was the standout (as much as I tried to discount it due to my obvious bias). Herald’s non-core Australian projects are being spun out in a new IPO Jaguar Minerals whereby the daughter of the long serving MD Terry Allen will be taking the reins of the new entity. With the projects worthy of a considerable increase in expenditure and Dairi now clearly Herald’s main focus the new IPO is sure to have its detractors, however I see it as a means of ensuring the full potential of Herald’s portfolio is realised. MEDUSA MINING (MML) 50C 2007 Options 34c +113% My calculation of the return of MML takes into consideration the closing price of 30.5c (day one) then adding a 1c payment for the options to arrive at a 17c gain on the 50c share price. The very positive results from Saugon have served to support the stock after it was trading Ex-Entitlement. Results included, 1m @ 35.9 g/t gold, 1m @ 541 g/t silver (a one hole wonder at this stage but the mind boggles), 1.4m @ 60.71 g/t gold and a narrow “Black Leader” vein intersection of 0.4m @ 92.62 g/t gold. Ore is being stockpiled at the project with the aim of having Medusa into gold production in CY 2004. The shares are extremely tightly held and illiquid, however MML are operating in one of the most mineralised regions on the planet in terms of the high-grade potential that exists between Co-O and Dilwalwal. MML are also undertaking bulk sampling at an alluvial project in Tasmania (gold-copper) MALACHITE RESOURCES (MAR) 26C +37% MAR’s decision to increase activity at the old Elsmore Tin Mine in Nth NSW was fortuitous, however the main games commences after Easter. MAR expect to be drilling the Tooloom Gold Project in an aggressive manner for the next 2-3 months. (Tooloom primarily gold, however silver potential exists within the project area). Initial results were met with a strong rally to 28c and the nibbling as continued on an ongoing basis. Straits Resources (SRL) increasing their holding to just shy of 5% is also interesting considering their gold aspirations in the New England Fold Belt. The exploration program at Tooloom may well provide considerable bang for the buck, as initial results prompted the company to create a rubber stamp along the lines of “Multi-million ounce potential”. In the same packet of stamps you will find, “Drill ready targets”, “Olympic Dam style mineralisation”, “Share purchase plan”, and the most humourous in terms of new IPO’s “Tight capital structure” then “Dilute the shareholders to buggery”. GOLDEN CROSS (GCR) 7.7C +5% Unfortunately for GCR they have released a host of positive results from Sunny Corner and Yellow Mountain following completion of their share purchase plan at 8c. Traders are now starting to play this one at lower levels knowing full well it cannot break the 10c brick wall without a killer intersection. In saying this, the stock obviously still has considerable support out there, however it needs time to digest the recent issue. Those selling down their SPP holdings are not loosing big bikkies and the boredom factor makes it a far from painful experience. INDEPENDENCE GROUP (IGO) $1.30 +19% After assisting in listing this one in January 2002 at 20c with ½ a 1-cent option I must say their progress, as been pleasing regardless of the fact I underestimated the potential of Long and Chris Bonwick to continually deliver. IGO have recently announced a major exploration program at Long, have been getting some sniffs on the gold front and have made the $15m purchase price of the mine look rather cheap in hindsight. RAMELIUS RESOURCES (RMS) 11C -15% RMS has just raised $2.5m at 11c and this has kept the share price action on the subdued side. With the tin now full RMS are set to embark on their most ambitious exploration program to date with 4-5 projects due for drilling over the next two-three months. These include work on two already identified gold resources at Black Cat and Wattle Dam along with further work on the gold and nickel front (more grassroots). RMS has had everything thrown at it (The Dog On The Tuckerbox Award For Worst Float) and telling the market it was trying to double its issued capital have not augured well for the company’s immediate future. RMS has plenty to prove and Joe Houldsworth is committed to proving the detractors wrong. The fact their exploration package is quite attractive should provide the initial kicker here. TRI-ORIGIN MINERALS (TRO) 27.5c +15% TRO are due to commence drilling at the Lewis Ponds gold-silver deposit in NSW where the resource stands at 350,000oz of gold and 18m ounces of silver. The company then intends to commence a program at Woodlawn (previously a high-grade base metals and silver deposit in Sth NSW, before returning to Lewis Ponds with all guns blazing. The stock has held on well without any drilling thus far and was a welcome addition to our silver sector, which continues to offer little in the way of choice. The management factor got Tri-Origin over the line in terms of being my preferred exposure to Australian silver. Those new IPO’s with a touch of class tend to trade in a similar fashion. You can tap them up for days and not see any movement, and then all of a sudden they are off to the races. A1 Minerals (one I have not covered) was stuck around the same price level (27-30c) before copping the odd speeding ticket on their way to the 80’s. PLATSEARCH (PTS) 9.3C -22% After some amazing sample results were released from Broken Hill, PTS has gone awfully quiet on the news and exploration front. For those that have played this one over the years the stock is either roaring ahead or comatose and unfortunately for some the company is working furiously on the JV front rather than sticking holes in the ground. Sometimes doing some housekeeping and getting everything order is far more prudent than drilling the guts out of a project to keep the speculators amused. Time will no doubt tell here. ARAFURA (ARU) 16.5C STEADY Arafura have just announced a 27% increase in their gold resource at Mt Porter and a further rain delay at the project I consider to be the “big picture play” Nolans Bore (REE/Phosphate). The increase has served to advance the company towards gold producer status, however their lack of a label thus far may well be hurting them on the market cap front. ARU is one company that will look to develop any project regardless of whether or not the market finds it sexy with the simple aim of making money for shareholders. ARU’s dry season assault on Frances Creek and Kurinelli (both high-grade gold targets) should ensure a steady flow of news once the rain breaks in the NT. UNIVERSAL RESOURCES (URL) 17.5C +35% URL are still trading below their 20c IPO issue price, despite having both their sulphide and oxide copper projects (the sulphide has a gold component) in the Mt Isa region upgraded and moving well towards ultimate production. The lacklustre share price has been a result of the wet season at Roseby and some low key work at their Burra VMS project in NSW (considered their summer project). The Australian copper juniors have largely gone unnoticed despite having a strong price combined with dwindling stockpiles. RELATED SITES FOR FURTHER RESEARCH www.herald.net.au www.coronagold.net (Unlisted Herald spin-off) www.medusamining.com.au www.malachite.com.au www.goldencross.com.au www.independencegroup.com.au www.rameliusresources.com.au www.trioriginminerals.com.au www.platsearch.com.au www.arafuraresources.com.au www.universalresources.com.au Tony Locantro Disclaimer: I have direct/indirect holdings in the stocks listed/mentioned above. Clients have considerable holdings in each of the stocks and may change these holdings without notice. The information on each stock has been derived from ASX reports, company discussions and a site visit to Long Victor in 2002 and 2004 (Independence Group). Each of the stocks listed is to be considered as speculative, and may not be appropriate for individual investors. No buy recommendations have been provided on the listed stocks, and the opinions on each are those of the author only. It should also be noted that some of the stocks may have very low levels of liquidity and may result in significant percentage rises and falls. Please conduct further research and consult your financial advisor before making an investment/trading decision. About the Author
Tony Locantro is a Perth based Senior Private Client Advisor specialising in the junior resource market. He is the author of "The Green Room, A Guide To Speculating On The Australian Stock Market" (available free to prospective clients via email request) and presents on resource stock investment. He has been a contributor to a number of precious metals and market related forums. If you would like further information or are interested in becoming a client I can be contacted at locantro@iinet.net.au
-- Posted Sunday, 4 April 2004 | Digg This Article
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