Afternoon all.....here's some light and entertaining reading from Tony. To view the full article which contains spread sheets, please go to: http://www.gold-eagle.com/gold_digest_03/locantro063003.html Cheers, Carl.
AUSTRALIAN MINING SECTOR REVIEW
Tony Locantro
Australian mining stocks remain subdued based on volatile PM prices (bias to the downside) and a reinvigorated biotech sector that has witnessed somewhat of a broad based sector rally as new capital is chasing any company that has provided even a subtle hint of movement. The strong moves in the medical stocks certainly suggest that liquidity is finally returning to the speculative end of the market after a 3 year hiatus, and whilst the results generated by a number of juniors have been solid another Minotaur (MNR) (17c to $3.00 in late 2001-early 2002) seems some distance away.
Over the last eight days we have witnessed the worldwide phenomenon of Harry Potter, and if anyone is looking for a reasonable example of a contrarian you only have to browse the one star ratings handed out to episode five on Amazon. Whilst they are few and far between it is reassuring to note that around 3% rated it two stars or less. The participation rates for gold and silver investment would probably match the percentage of those courageous enough to bag Harry Potter. Whilst the adults continue to adore their real estate portfolios and mainstream managed funds, there is certainly one "P" missing. Potter, property and? Maybe if you asked an ankle biter you would probably here cries of "Pokemon".
On Thursday night I witnessed another dose of absurdity in the form of a televised auction, where a modest North Fitzroy (Inner Melbourne) property after the "Auction Squad" makeover fetched $740,000 ($140,000 over the reserve) after a calm bidder decided to start jumping others by $30,000 a pop without barely batting an eyelid. If only this level of enthusiasm can be directed towards the mining sector, as the investor would probably stand to reap considerable profits instead of taking a 30-40% bath on the property investment.
Those currently disillusioned with their PM and mining investments should take considerable heart from the activity not only taking place in the biotech stocks but also in small pockets of real estate and the current boom that is threatening to banish the school yard jocks into oblivion.
ASX PRODUCER SCORECARD
I have changed the table to not only include Resolute (RSG) (Thanks to the reader that noted its omission), but also to provide a clearer picture on how certain stocks are performing relative to the sector. Whilst on average the decline in ASX listed producers was modest considering the fall in the $A gold price, the table illustrates again how stock selection is paramount in the current environment. We are not yet into those wonderful days where throwing darts at the mining page would result in easy profits you could turn over continually after three days. In my previous review of the producers I selected Herald Resources (HER) as the next likely outperformer and whilst Dalrymple (DRE) has been the shining light thus far due to a proposed merger with LionOre I maintain this view based on a recent announcement I will discuss in the explorer review.
The popular ASX companies, Croesus (CRS),Lihir (LHG) and Oxiana (OXR) performed well below the sector average as the strength came from a handful of Australian plays and surprisingly the foreign-based trio of Anglo, Placer and Newmont. Some of the lesser-known gold stocks such as Equigold (EQI), Herald (HER) and GRD (GRD) are starting to outperform the sector as alternative investments are sought. The companies that performed well over the period generally have lower market profiles and liquidity. Previous market darlings have come under further selling pressure and are struggling to arrest their downtrends regardless of positive announcements and/or expectations. Emperor's (EMP) performance has been hampered by the ingress of hot water and fluctuations in grade at its gold mine in Fiji. The company announced on June 4, 2003 that the results now might not meet previous expectations. The company stated that these problems have surfaced during the 70-year history of the mine and does not see any material impact on the expansion plans. Gindalbie (GBG) has come under considerable pressure through the combination of entering a depletion zone (decline in head grade) at Silverstone South, along with a sell recommendation from Rene Rivkin (prior to weekend detention penalty handed out after found guilty of insider trading). The company recently raised capital at 7.7c per share and has stated that operations have moved into the higher-grade ore and production has improved. EMERGING GOLD/SILVER PRODUCERS
Those companies with advanced gold projects nearing production have also come under considerable selling pressure in line with a number of major producers. Some of the more noteworthy movements include, Bendigo (BDG) to a new yearly low of 18c (high 31.5c), Centamin Egypt (CNT) trading just of its low at 20.5c, with Dioro Exploration (DIO) 11c stuck in a tight trading range of 10-12c after the company announced that the Frogs Leg Project has been further delayed due to some water flow problems. (ASX announcement in February 2003). Since that announcement the company has released further promising drilling results from Frogs Legs with investors waiting on any further indications of when mining is to commence (was set down for late in the June 2003 qtr).
The merger terms between Gallery Gold (GGN) 15c and Spinifex Gold (SPX) 38c were recently revised with Spinifex shareholders now receiving 2.4 GGN shares for every SPX share held. (Were previously 2 for 1). The merged entity will have an advanced gold project in Botswana (Mupane), along with a host of prospective tenements in Tanzania.
Redback Mining (RBK) 34.5c has managed to remain firm with strong support from overseas institutions and the completion of the BFS at the Chirano Gold Project in Ghana. The company announced a resource of 2,051,000oz with 130,000oz pa of production over a 6.5 year mine life factoring in a $US gold price of $325oz.
Sedimentary Holdings (SED) has recently performed strongly after some very positive reviews from mining journalists after previously trading in a very tight 11-13c range. (Last sale 16c). Shares in Dragon Mining (DRA) 6.6c continue to drift after the environmental hearing decision for their Svartliden Project in Sweden has been delayed to August 28, 2003. Pending a favourable decision the company is expecting gold production within nine months.
Oroya (ORO) 11c remains in trading halt with an announcement expected on Monday June 30, 2003. The company after a successful pre-feasibility study commenced a bankable study into reopening the Mt Gibson Mine. Giants Reef Mining (GTM) 4.8c announced on June 25, 2003 that refurbishment of the Chariot Gold project is on schedule with the first gold pour set down for October 2003.
Macmin Silver (MMN) 7.4c have announced the commencement of drilling at Silver Spur along with a new zone "Goanna" defined less than 1km East of the Texas silver system. The share price has recently recovered from the sub 7c level against a backdrop of the falling POS and previously announced delays in terms of moving Texas into ultimate production based on the $US silver price.
With a number of emerging producers coming under considerable selling pressure, the sector could well provide accumulation opportunities outside the major producers. As a number of projects advance and milestones are achieved some may undergo significant share price re-ratings regardless of the prevailing spot gold price.
EXPLORERS UPDATE
In my previous article, "The Australian Explorers" I selected a portfolio of nine juniors that covered not only precious metals but also copper, nickel, lead and zinc.
I have added Apex Minerals (AXM) 10.5c after the company announced they had commenced 1800m of RC drilling at the Jillawarra Project targeting major copper-gold system. The program will consist of six three hundred metre RC holes, whilst further drilling at Windimurra and Narndee is also planned over the coming months. The company has approximately 39m shares on issue and is expected to maintain a cash balance of $2m (post Jillawarra drilling). Australia's most famous prospector Mark Creasy holds around 30% of the issued capital. Results from Jillawarra are expected in around five weeks, with the drilling described as high risk/high reward.
Austminex (ATX) announced an extension to their share purchase plan to July 8, 2003 based on a strong late response from holders. The SPP price is 6.6c with current shareholders entitled to a maximum of $5,000 worth of stock.
Herald (HER) briefly touched 54c after announcing an attractive deal for shareholders in relation to Corona Gold where for every 2 HER shares held they would receive 1 Corona share at 1c. Macquarie Bank has entered into an agreement to subscribe for 5% of Corona at 15c per share. Residents of the US and Canada have been advised by letter in terms of the announcement and once the record date is advised they will have to make other arrangements if they wish to participate in the issue. I am still awaiting HER's pre-feasibility study on the Dairi zinc-lead-silver project along with an update from gold activities in the Coolgardie region.
Ramelius (RMS) after market on Friday announced further drilling results from Black Cat and Bonnievale. The best intercept reported was 14m at 3.6 g/t gold at Black Cat South.
GENERAL COMMENTS
The $A gold price remains under pressure, and investors should take note of the more marginal operations. Some companies have undertaken prudent hedging strategies designed to protect low-grade stockpiles and weakness in the gold price. Companies that report below expectations are finding it difficult to regain investor's confidence. A number of companies that appear "cheap" after the news is released have tended to dead cat before resuming a gentler slide. The Australian gold sector in terms of share price performance across the board has been mixed at best with a number of the more popular issues struggling to regain their momentum. Tax loss selling has appeared to be far heavier than in previous years, as the recent issues that have failed to hold their issue price come in for special treatment. I would expect some further weakness, however I have noted stronger than usual buying support in some stocks that are meeting the selling pressure head on. The emerging producers should be monitored closely as price weakness may be temporary based on company specific announcements pending in the near/short-term. Working in the buyers favour is a lack of rotation out of the majors, which could well assist in depressing selected companies share prices prior to the next leg of the PM bull market. Whilst the biotech sector is attracting considerable attention and increasing volatility the fact it is has emerged is promising from a speculators perspective. Exploration results continue to give confidence of a major discovery, however there has been a shortage of solid buying across a number of issues.
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. The company websites have been provided where applicable for further research. 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.
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" and presents on resource stock investment. He is a contributor to a number of precious metals related forums.
Contact Details: [email protected] for further information and/or contact details.
