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Font Size: Decrease Increase Print Page: Print Robin Bromby | August 11, 2008
"THE market for juniors is over. Full stop." Well, we asked for your opinions about what was going on out there, and we got them. That remark, by the way, came from someone who is both a director of a junior company and a punter.

And he added, just in case we had missed his point: "There is no place for the juniors to hide. Oh, there'll be some survivors, the ones with really good projects."

This man is vowing to stay on the sidelines until all the carnage is over. He will be looking for those explorers where managers are prepared to put aside their egos and merge their interests with other companies to ensure survival.

The Dow's rise of more than 300 points on Friday will ensure our market gets away to a good start today, but if you're thinking about buying into the juniors, feel free, but as the great movie phrase-maker Samuel Goldwyn would put it, "include me out".

When you are getting, as we did on Friday, individual metals falling more than 7 per cent in a day, then the older and wiser heads will surely be putting their cash in the bank and waiting until the smoke clears. Which could be a while.

There are US analysts saying that the sudden plunges in prices of various commodities -- oil and cotton as well as metals -- just shows that the recent upward movements could not be sustained. Spot gold has now fallen from $US977 an ounce on July 15 to $US856.60 on Friday, with daily drops of greater than $US10/oz not uncommon.

This wasn't meant to happen. Where did the commodities super-cycle go? Into hibernation, at least. But it will be back.

Punters stay on sidelines

FORGET the hype of the explorers or the projections of analysts, or indeed forming conclusions based on listening to late-night drunks in Kalgoorlie over the past week. Listen instead to what is happening out in the real investment world.

One of those who responded to our calls for tales of personal experiences tells us he is 70 per cent in cash at present. He got rid of seven spec stocks in December when the term "sub-prime" entered his consciousness. This was after he had dumped all his uranium stocks as soon as he saw a new wave of companies coming to market with moose pasture (a more polite term than this reader used to describe their ground).

This is his strategy: one, realise that most floats are intended to mine the market rather than any piece of ground and, because it is hard to tell which ones are genuine about exploration, treat them all with suspicion and flick them as soon as the momentum ends. This applies just as much to iron ore juniors as to anyone else.

Two, the only people who really make money are those who get tight with people in Perth who will deal them in at the seed capital stage. "I'm only a mug punter," he writes. Quite the contrary probably.

Another reader is still in there buying and adding to positions in companies he believes have good people, good projects and good long-term prospects. He doubled his money in the two years to May 2008 and is down since then by about 20 per cent. "All in all, not a disaster," he says.

But he can't understand why companies he believes have good prospects have been sold off so strongly -- companies like Integra Mining (IGR) and Zambezi Resources (ZRL).

"The odd bolter in the portfolio has helped to keep me interested in spite of the doom and gloom," he adds. He bought Orocobre (ORE) -- it has lithium and potassium in Argentina -- and watched it run to 50c, then baled at 39c on the way down (it closed at 29c on Friday). He got in on the Eastern Iron (EFE) float and bought Eromanga Hydrocarbons (ERH) when it struck oil in Brazil.

"I'm loaded up to the gills in cheapies at the moment and therefore hope there'll be another run up," he concludes. "If not, I can weather another 25 per cent to 30 per cent downside before I'll seriously consider throwing in the towel." There's someone to add to your prayers.

A reader actually in the industry and employed at a mine tells us he also likes Integra Mining -- incidentally, not his employer. "I got in at 14c and sat back and watched them climb to 70c. They now sit at 22c." But he is still a believer in the company with most drill results bringing home the bacon. "Most commentators/analysts are suggesting staying well away from resources of any kind. I'm thinking it's a great time to forget the herd mentality and pick up (stocks)," he says.

Another punter is licking his wounds. Just over a year ago this investor quit uranium and nickel and switched to gold and oil stocks. "You'd have thought I'd be laughing all the way to the bank," he says. No, he's down 35 per cent and he just can't figure, other than the impact of margin calls, why Roc Oil (ROC) and Stuart Petroleum (STU) are not higher than present levels ($1.225 and $1.10 respectively).

Green with envy time. A South Australian reader writes: "I'm fine, have no debt, house is paid for, have bought shares as recently as June and July, not suffering huge losses. I'm doing OK, up 20 per cent." But this reader hears that many retail investors are getting out and putting the money off their home loan -- which he thinks is the best strategy at present.

Then we have a reader who is overwhelmed by the massive number of opportunities out there. Great announcements are being overlooked and good companies sold down. "As someone who likes to buy on the cheap, I can't say I'm complaining too much," he adds.

Ignore the market and the lemmings, do the research and back yourself, this reader advises. Ring companies and ask the right questions. He recently sniffed the wind around Kentor Gold (KGL) and was rewarded when the company announced it has acquired a big magnetite-copper-gold project in Kyrgyzstan.

That's all the space we have this week. More next time -- and you're welcome to write to the email address below if you want to air your views on this challenging market. All material used anonymously, of course.

Good yarns stir a yawn

JUST to underline the reader's point above that investors are losing interest in exploration stories, the market shrugged when Azure Mining (AZS) reported last week that it had hit another rich copper intersection at Promontorio in Mexico. Following up on the earlier 4m at 9.7 per cent copper, the company said a drill hole had returned 13.35m at 5.7 per cent copper (with 2.35m of that assaying at 20.5 per cent), again along with gold and silver. Azure's Tony Rovira was part of the exploration team at Jubilee Mines that discovered the big Cosmos nickel deposit.

There was also a collective yawn when the battered Highlands Pacific (HIG), which holds a 16.4 per cent stake in the Frieda River project in Papua New Guinea, reported that drilling by farm-in partner Xstrata had hit 329m at 0.85 per cent copper. No, that's not a misprint -- it was a 329m intersection. And, yes, that is a pretty impressive average grade, too.

One sitting pretty

ONE company that doesn't need -- at least, not yet -- to worry about the ups and mainly downs of metal prices is Mineral Resources (MIN). This contractor, which made a $20.2 million profit in 2007, says its guidance for the 2008 result is $47 million.

Fiscal 2009 has got off to a good start with MIN announcing it has been contracted by Gina Rinehart's Hancock Prospecting for the development and operation of the Balfour Downs manganese mine between Newman and Woodie Woodie in the Pilbara.

Momentum for minnows

WHILE the crude price has been coming off, it was interesting to note that some of the 40-plus juniors drilling in the US -- still a relatively neglected sector -- got a little kick to their share prices during the week. Exoma Energy (EXE) saw some real momentum with its announcement that the latest horizontal well in Oklahoma's Anadarko Basin was flowing at 170 barrels a day along with gas.

Exoma's policy is to acquire acreage and then bring in a partner to finance the drilling in return for a large stake. The junior is now cash positive, its daily share of production being 110 barrels of oil equivalent. Exoma is aware that going out and raising money is not a viable business model now, so is looking to get as much cash flow as possible from its US properties. The Anadarko Basin is huge, attested to by the fact that some parts have wall-to-wall nodding donkeys across the landscape. It was where the now major Anadarko Petroleum got started with its 1959 gas discovery.

Others in the spotlight during the week were K2 Energy (KTE), the reconstructed Tomahawk Energy, whose latest report contained hopeful news about its Oklahoma properties, and Austin Exploration (AKK), which has picked up more ground in one of the top US oil plays, the Giddings field, which extends from Mexico through Texas into Louisiana. Austin plans to re-enter existing wells on the ground this year.

A little colour came back into the cheeks of Kilgore Oil & Gas (KOG) on news that drilling will start next month on an offshore Louisiana prospect in which it has 15 per cent of the well being drilled by Apache Corp. Kilgore listed a month ago but remains under water at 15.5c.

The Australian implies no recommendations regarding any of the stocks mentioned. The author does not own shares in any of the securities mentioned.