upgrades ridley iron resource, page-5

Found this on the Daily Reckoning, wonder if they were talking about AGO?

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An Investment Philosophy for the Next Leg Up in the Resource Boom
By Al Robinson, Editor, Diggers and Drillers

If you think of Australia as a stock, it looks like a pretty good play. Assets on the balance sheet this year have ballooned by 25%, or $32 billion. Earnings this year are set to rise by over 40% to more than $200 billion. It sounds as though the company is doing rather well.

The assets we're talking about are new investment in resource projects. The earnings are mineral exports. They're both good indications that Australia is feeding the world's developing powers, and getting paid handsomely for it. It's one of the best businesses in the world.

Meanwhile our share market is down 30% from its high. Our currency has fallen around 19% from its high too. Australia the country is undervalued on the global stage.

The fall hasn't come without reason. But as credit markets have unwound, Australian investments have suffered more than those in the US or Britain. Yet Australia the country is backed by tangible assets that have real value. And earnings are at record highs.

It's an opportunity that international investors - specifically Asian economies with high rates of savings - will only pass up for so long. So we're suggesting an unpopular strategy for next year. Begin accumulating good mineral and energy investments now.

That isn't quite as simple as it used to be. Markets are less forgiving than they were between 2003 and 2006. The main problem is that the worst symptoms of the credit crunch aren't over yet.

You can still invest intelligently in the ongoing resource boom. We're nearing the best possible time to do that. But you'll have to adjust your strategy. Your focus should be on looking for mining and energy firms with three indispensable traits.

The Three Ps

Above all else, a good miner in 2008 needs a quality PROJECT. That means, at the very least, a profitable resource of material in the ground.

Even better would be a quality reserve. As you may or may not know, there's a difference between the two. A resource is simply what material is located in the underground deposit. A reserve is by definition a resource mine-able at break-even or better, economically speaking.

There's no point buying a cheap stock with no deposit. But there's no point overpaying for raw material. That's the least of your worries though. We've seen good reserves trading for less than 20% of their real value. If you look hard enough, you'll find a good one at the right price.

Slightly more difficult is finding a company run by PEOPLE who can bring the project through to production. So to simplify things we suggest you invest in a firm run by a management with two qualities.

At least two decades of experience dealing with their company's commodity.
Decades of experience financing mining projects.
Directors need to know what the highs and lows feel like in their chosen market. That means both geology and marketing. Avoid inexperienced teams that have gotten high on the recent fumes of the commodity boom. Some projects won't be profitable at any price. It's up to management to drop these, not approve them. An experienced team knows when to cut losses, and when to forge onward.

One of the greatest threats to a mining stock's share price is a lack of funding. Getting funding depends on talented financiers with good contacts.

That leads us to our last trait. Finance is crucial, especially in the junior market at the moment. Indeed, one of the reasons many good projects are trading at a fraction of their value is because they'll never find the money. They're living a pipe dream.

In a credit crunch it's nice to have someone to lean on. So right now, miners need financing PATRNERS. This can mean a major shareholder on the share register. One Diggers and Drillers stock has over five major Asian steel companies near the thick end of its ownership.

It can also mean a major investor in the project itself too. Another company we recommend is trading at less than 15% of its mine's expected value. Even if it sells off equity in the project, it'll still have a lot of that pie to itself.

The main point is that fewer companies will be able to go it alone in this climate. So you have to play smart and choose the ones with financing in place to fall back on.

That may mean choosing a company that sacrifices some equity in a project, or possibly even having your shares diluted by new capital raisings. But with projects as cheap as they are now, you don't need to worry so much about future share price appreciation. That'll take care of itself.

The key now is picking firms with talented people, trustworthy financing partners and quality projects. A firm with those traits will outlast the financial mess, and prosper from the longer boom.