Resource minnows worth fishing for Look beyond the majors for investment thrills, writes Robin Bromby --------------------------------------------------------------------------------
April 01, 2006 LOOK for the fresh faces - that probably best sums up the investing advice for the resources sector. THE WEEKEND AUSTRALIAN
WEALTH
Resource minnows worth fishing for Look beyond the majors for investment thrills, writes Robin Bromby --------------------------------------------------------------------------------
April 01, 2006 LOOK for the fresh faces - that probably best sums up the investing advice for the resources sector.
New mines or oil fields, mid-tier companies expanding - these all mean a fresh wave of revenue for the company concerned, and these days the chances are the new production will be unhedged. And, outside the uranium bubble, there is value still to be added by the market.
No one questions the other strategy: the one that argues that BHP Billiton and Rio Tinto offer some of the world's best exposure to commodities. Anyone who has been on those registers for the long haul, and added to their portfolio before the boom, might now be able to afford that little getaway property in France.
Any investor who has been buying Newcrest Mining - the stock that so accurately charts the gold price - when gold took a dip, will also be considering themselves to be pretty clever.
But the thrills are elsewhere.
Take Discovery Nickel. It has been largely unnoticed, its shares tracking below 20c in recent months. Its headline news is a nickel project in Botswana. For most investors, nickel is so yesterday. Botswana? Forget it.
But someone has started to notice that Discovery also has the Maun copper project in that southern African country, and the stock has now established a floor above 23c.
Rohan Edmondson, client adviser at Montagu Stockbrokers, also thinks Discovery is one of the juniors to watch. Maun has, in past years, been drilled by both US Steel and Anglo American. They concluded that mineralisation at over 2 per cent copper could be traced vertically for more than 300 metres.
Edmondson would not be surprised if Discovery's present review of all the old data pointed to a resource as large as 25 million tonnes at 2.5 per cent copper. That's a lot of copper. That's also a lot of money with copper hitting a fresh high on Thursday of $US5420/tonne.
Make no mistake: this commodities boom is nowhere near ended. That means that, as the resources sector expands its weighting, the institutions will have to follow. And that means more dollars being hurled into the market, and that in turn ensures that share prices keep on rising. ...........
........The fresh-faces strategy is particularly appealing because today emerging producers are not at the mercy of banks demanding that hedging contracts be entered into (to protect the banks' money). No, companies are out there raising new money in the form of equity.
Just yesterday, Compass Resources said two US funds, Harbinger Capital Partners and Citadel Investment Group, were joining the register, buying $38.6million in new shares to help finance the company's base metals project in the Northern Territory...........
CMR Price at posting:
0.0¢ Sentiment: Buy Disclosure: Held
