Three deals in the past two days which should be giving investors large and small considerable food for some nervous thought.
Date: 25 January 2005
Has the stockmarket peaked? Is the great Resources Boom of 2004-2005 over without our realising it?
While there's no Poseidon-like stock this time, nor is there anyone out there ringing bells to mark the top of the current boom, three deals in the past two days should be giving investors large and small considerable food for some nervous thought.
All involve distinctly unglamorous commodities, oil, coal and iron ore.
No property, biotech, internet or gene technologies here, nor any gold, diamonds or some other exotic mineralc.
Just those old minerals, which have seen Fortescue Metals become 'the new iron ore' giant in the making, Poltech, a collapsed manufacturer of failed police speed cameras about to be transformed into a fairy princess involved in coal mining.
The third is the most intriguing of them all and perhaps the biggest warning to investors. Alan Bond, the name that sank a thousand companies in the 80s and 90s is back in harness and sniffing for oil, or so media reports said Tuesday.
Oil has a tinge of glamour at the moment, simply because of current high prices, but it goes out of fashion as prices ease. Likewise coal and iron ore. All are very responsive to economic activity, so when demand slows and oversupply emerges, the share prices go south.
But those fundamentals do not worry the promoter or urgers behind the spec end stocks.
Reports today saw Alan Bond, the perennial stock shuffler and boom rider from the 70s onwards, is back hovering around a speculative oil stock based on Madagascar in the Indian Ocean (Tsunami Oil, anyone?).
That's a deal coming from London, according to reports in The West Australian newspaper and published on the Fairfax website today(and in Tuesday's Sydney Morning Herald - Bond's role in 'huge' oil find uncertain).
London has been the refuge for many Australian entrepreneurs (as has Spain). Bondy's been based there trying to rebuild his dreams after doing time in a West Australian jail in the late 90s.
Then there's the revelation of how Andrew "Twiggy" Forest has very nicely mined the market to rebuild his personal paper fortune that was all but destroyed by the disasters at Anaconda Nickel, his previous play thing.
The latest play has seen him zoom to a potential $300 million on paper, even before his Fortescue Minerals has a feasibility study for its Western Australian iron ore dreams.
After the dramas and disasters of lateritic nickel and Anaconda, Twiggy was all but unbankable, but now he's back, riding the most unlikely boom of all, iron ore.
Here's what an investment banker wrote in yesterday's second Sealed Section:
If you ever wanted to get a feel for the lack of moral fibre in corporate Australia you need go no further than Fortescue Metals boss Andrew Forrest. As reported in The Australian today, Forrest has declared the overnight crystallisation of a $300 million profit for himself a “remarkably selfless corporate act”. Praise the lord!
How easy it is to grant yourself deep in the money options and then when the stock is at all time highs convert them to stock. Certainly this has been a well worn path for corporate Australia. However, to describe it as a “remarkably selfless corporate act” is one of the most outrageous things I have ever heard. That Forrest has made investors in Fortescue Metals some handy returns is not in question but to parade his gains in such a fashion is insulting.
CRIKEY: Indeed, it was a good story by Clive Mathieson in The Australian today which you should check out here. The Fin Review had the basics but missed the fact that Forrest was crystallising a $300 million gain for himself. It is worth checking out today's various ASX announcements on the capital raising, options conversion and change in directors' holdings here.
The Forrest disclosure is the last of the directors' statements and the numbers are quite mind boggling.
Last week Forrest had 42 million shares in Fortescue but today he has paid $5.11 million for an additional 63.85 million shares or just 8c a pop, bringing his total stake to 103.85 million.
Mathieson suggested this dilution would send Fortescue Metals shares south today but the reverse has happened because the market is happy it has bedded down a broader $70 million funding package. The stock closed 14c stronger at $3.04 today, meaning his stake is now worth $315.7 million. This is the most valuable stake in an Australian mining stock owned by any individual.
Twiggy Forrest has long been a colourful character whose original backers lost a fortune in the Murrin Murrin nickel project before the new owners and management team helped turn the ship around as nickel prices simultaneously soared.
Now he's trying it all again and the bloke is trying to claim paying $7 million for something worth $186 million is a "selfless act". A true selfless act would be locking the stock up in escrow until the East Pilbara Iron Ore Project Twiggy is dreaming about building is actually up and running.
Fortescue shares rose 14c to $3.04 today (Monday) so the company is now capitalised at $660 million and Twiggy has almost half of them.
And then there's the final straw, Poltech, from body speed cameras to coal! (SMH - Poltech to reinvent as coal explorer NECs)
While the two other examples are solid warnings of a boom that is showing signs of going stale, when company promoters take a failed tech stock and inject Coal Mining and exploration assets into it, you can bet on the boom being very whiffy indeed.
Coal might be in short supply because of the great Asian and Indian economic boom, but those surges are showing signs of staleness and the US economy is looking shaky. But who cares, there's money to be made in the market from greedy investors!
FMG Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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