December is always a wonderful month of the year, where the mining company Christmas party invites start to arrive in droves (we need at least 10 Friday's in December or a move towards even Saturday or Sunday events), and many others will sit down and put together their stock and sporting selections for the coming year. I always like to have mine completed in early December, as there is always a little window of opportunity where a stock or sector will run despite a much smaller number of participants. My urgency on this occasion is based also on the amount of drilling currently undertaken by a number of juniors and the steady flow of results that should easily take us through to February.
My 2003 Calls…. close but no cigar yet
My call on gold was for a test of the 1996 highs ($418oz) and for silver to end the year in the range of $5.55-$5.75. When making these calls I simply shut my eyes and pictured where gold and silver could be in 12-mths. My keyword on some stock selections would be "underestimated" where a number reached their ultimate upside targets and continued motoring along. I simply do not believe in charting (never have and never will), however I have elected to closely follow the price movements of the mining sector, and gauge sentiment from phone calls, Friday afternoon drinks, Internet forums, and from simply talking to people in the industry.
2004…. Will it meet expectations?
My main fear for 2004 is based on the fact I expect an even better performance than this year from a number of stocks/commodities and during my five years in the industry I have never been so unashamedly bullish on gold and commodities. The bull market thus far has been steadily building, as it seems like an eternity since you could buy Croesus (CRS) at 24c knowing full well that the weakness was based on arbitrage and not a negative view on the CNGC merger or try to pick up some Normandy around 90c. In my opinion the easy money in the major producers has already been won, as during the next phase it is the mid-caps and specs that will provide the bulk of the returns. Even during the break of $400 the major Australian producers with the exception of Newcrest (NCM) have struggled to even reach some of the highs set in June 2002.
I obviously do not want the speculative blow off to occur in 2004, so again in terms of price targets I am going to go middle of the road in terms of being conservative and suggest that gold could reach $470 with silver knocking on sevens door at $6.80. (All figures in USD). I for one hate giving price targets on anything that could make me look quite stupid in the end.
The fundamentals for gold and silver have been sensational for sometime, however it is normally the idiots that push prices to extremes, and I am not old enough or rich enough yet to join them. Part of me hopes that I am far too conservative, however I would much prefer five more 2003's, than go through 2-3 months of writing pink slips and having a client base scared of re-entering the market after a bout of stomach churning volatility. I must say that booms are terrible distractions and if anything they are designed to shake you out of investments that would normally do well in any environment.
More Views than a city penthouse….
From the Internet and various forms of press it is apparent that we have a number of voices on the gold market. The two interest rate hikes in Australia combined with the failure of Henry Kaye may eventually lead to a new breed of opportunists seeking out the next hot sector of the market in terms of exploiting investors and at this stage both gold and silver are clear favourites. Some newsletter writers are already starting to feature heavily on Australian websites and are gradually finding their way into the mainstream.
I have heard and seen various calls for a significant correction in gold equities, however unfortunate aspect of this is that the Australian gold stocks have hardly set the world on fire, and all of a sudden another great wall of fear is built and we are then forced to start all over again. You only have to look at the nickel sector to see that commodity itself continues to rise yet the bulk of our nickel stocks are struggling to hold their ground after they factored in the significant price increase well before it eventuated. It would appear that the copper, zinc and lead juniors are now being deserted despite rising commodity prices in favour of a return to gold and to a much lesser extent silver.
All this talk about short-term corrections, explosive moves to the upside means little to me, as the companies I target/research/invest in are not for the short-term and nor do they need to be invaded by penguins to survive. It a stock falls 10-15% from its highs so be it, I am not going to regret not selling because as soon as I do I become what is known as a "trader" and we all know what that normally means (very little career progression and success in the end). If I could make a living out of gambling I would be running trailing stop losses on the blackjack table at Burswood. I had just fewer than 500 clients during the tech boom and have learnt one heck of a lesson, "Trading in the long run does not pay off". I consider making price predictions as being in a union where you pay your fees and do nothing except claim a tax deduction. I refuse to be shaken out of my stocks by someone saying that the share prices could come off 10-15% short-term, or that gold equities fall in line with the Dow Jones.
Having an edge is not about taking charting 101 as there are very few barriers to entry (check the bargain bin at most book shops), I would much prefer to develop relationships with companies that take far longer than most attention spans would permit. I am not saying that there is a correct way of attacking the markets, what I am trying to point out is that many traders are going to eventually get hammered simply because they are too regimented and scientific therefore dismissing the fact that the hairy, smelly old man sitting at the pub perving at the skimpies may indeed have 5 million shares waiting to be unleashed onto that one stock that just gave an almighty technical buy signal.
Food for thought anyway.
NINE EXPLORERS FOR 2004
As with some greyhound races I always like to leave a box/ boxes vacant when coming up with a list of stocks for the following year. What has made the task somewhat more difficult than the list I came up with in June this year, is that prices on some have moved considerably and I am now leaving myself open to greater volatility rather than taking the safe approach and seeking out stocks I felt were fairly close to rock bottom and priced well below a back of the envelope valuation. It should be noted that my clients have holdings in the nine stocks mentioned, and will be rotating funds between them on exploration success or fear of a near-term correction. Any companies where I am/intend to be a heavy net seller have not been included regardless of fundamentals. The starting price for Medusa Mining Ltd will be the last sale price on their ASX debut, which is planned for later this month.
HERALD RESOURCES (HER) 68c
HER are currently completing a Bankable Feasibility Study on the Dairi zinc-lead project (6.3mt @ 23% zinc equiv) in Nth Sumatra Indonesia. Whilst a BFS is enough to put any long-term investor to sleep, the company has gold production/ongoing exploration at Coolgardie WA, a major gold exploration project at Meluak (Aceh, Indonesia), and more recently samples of up to 60% lead and 1290 g/t silver have provided some interest at Sinar Pagi. The company recently conducted their 55th AGM and with just over 60m shares on issue this is a perfect example of what a tight structure really is. If I was forced to make one call on the market this would be it, and one day my kids one day might appreciate why they got SFA in the toy department from me at Christmas and on birthdays. Investing is quite a relaxing pastime when you are buying with a 17yr timeframe.
MALACHITE RESOURCES (MAR) 19C
MAR have just closed their share purchase plan where shareholders were able to purchase up to $4950 worth of stock at 18c per share. This has kept a pretty tight lid on the share price, however with results pending from Rivertree, drilling at the Tooloom goldfield, and plans to move into alluvial tin production in mid-late 2004 things could change quite quickly from the current lethargy. The company remains focused on high-grade silver and gold targets in the New England Fold Belt of NSW/QLD, whilst opting for a near-term cash flow designed to protect shareholders from severe dilution and to see the company self sufficient in terms of exploration. One of only a handful of silver juniors on the ASX and a likely beneficiary of any mainstream press on the silver sector.
INDEPENDENCE GROUP (IGO) $1.08
IGO were one of the star performers during the frenzy for nickel producers/explorers. After struggling in the low 30's the company announced not only exciting exploration results but also record nickel production/profits from their Kambalda operation. After listing in early 2002 and raising $4m the company now has set aside that figure as their annual exploration spend. The company is targeting not only nickel but also some attractive gold targets also along with having a considerable land package in the Musgrave region.
The company is led by Chris Bonwick who must be considered as one of the "rising stars" in the Australian resource sector.
GOLDEN CROSS RESOURCES (GCR) 7.4c
GCR'S share price has been harshly treated of late as results from the latest round of drilling at Sunny Corner failed again to push it through 10c. The failure to secure an early cash flow, which was lamented in the Chairman's address, was also a likely source of negativity and with traders exiting in droves the shares have only recently found something that resembles a floor. The Canbelego issue (JV with Polymetals) has now been resolved, and it now provides GCR with the opportunity to secure the cash flow it has been desperately seeking. Combine this with major holdings in Broken Hill, the Kempfield Silver-Barite deposit and some JV's with majors and the outlook for GCR suddenly appears somewhat brighter. I have heard calls of "Gunna" on this one, however I have seen plenty of "Gunna's" eventually re-rate and very quickly.
PLATSEARCH (PTS) 12C
After listing with a bang in 1987 PTS's chart looks like a set of goal posts with the right side missing. In terms of exploration models, PTS's stacks up well with the level of expenditure by their JV partners (PTS's major partner is Inco), and their focus on higher-risk projects where they see themselves as the "generator" and not the developer (retain an interest for the company though). PTS are currently involved in a share purchase plan at 11c and this is likely to dampen the share price performance in the near-term. The commodity mix extends from HMS to base and precious metals.
ARAFURA RESOURCES (ARU) 16c
ARU have only been listed a few weeks, yet already it would appear that they were overpriced at the 20c level based on the selling to date. ARU have some high-grade gold targets in the Northern Territory and are currently completing diamond drilling with the aim of having Mt Porter in production in the short/medium-term. The other major project "Nolans Bore" is a rare earths/phosphate project that is likely to be drilled in early CY 2004 (weather conditions pending). ARU appears to be quite a serious mining play and one that the market has yet to really pay much attention to.
RAMELIUS RESOURCES (RMS) 13c
RMS's major focus is on the Black Cat gold project where they are looking towards moving towards production (25,000oz resource). The company has been chipping away with a host of announcements relating to increasing their landholdings as opposed to exciting drilling results which has seen the share price drift lower on negligible volume.
With a number of drilling programs planned for early 2004, the situation could change quite easily as witnessed with a brief rally to 24c on the back of a resource upgrade at Black Cat.
UNIVERSAL RESOURCES (URL) 13c
URL have been drilling furiously at their Roseby Copper-Gold Project and have brought out a string of positive announcements over the past 6 mths. Their latest however was on the disappointing side as ground conditions prevented many drill holes from reaching their target depths. Drilling has again resumed at Roseby, whilst there are plans for revisiting the Burra zinc project (NSW) in early 2004. Management believes they have a world-class copper-gold project on their hands, however judging by the 13c price tag the market thinks otherwise. I guess this one is a case of who do you believe, however Peter Ingram has been there and done that with Metana during the 1980's mining boom so experience is certainly on his side.
MEDUSA MINING LTD (Yet to be listed) 20c Issue Price
Medusa Mining Ltd is aiming to list on the ASX later this month with the IPO set to close this week. Whilst the location of the company's major gold project (Philippines) may deter the majority of investors from touching it the geology of the region cannot be underestimated. A key point on Saugon, "Medusa's Saugon Gold Project comprises 215km² in an extensive regional mineralised field where known epithermal vein deposits with lengths up to in excess of two kilometres have clearly demonstrated that gold grades can dramatically increase with depth, producing economic (in places at bonanza grades) mineralisation grades to over 600m depth, eg, Co-O Vein currently still open at 250m and Diwalwal Mine almost worked out at 600m." More recently other ASX listed companies with projects in the Philippines have undergone significant re-ratings and these include, Indophil (IRN), Red 5 (RED), and Climax Mining (CMX). Medusa will be an interesting case study in terms of how the market treats a newly listed company with a major focus on the Philippines that is yet to prove itself in terms of exploration success.
Disclaimer: I am raising funds for Medusa Mining Ltd on a best endeavours basis in their IPO and am being paid a fee for my services.
2003 looks like winding up as the best year since 1996 for those involved in PM's and especially base metals. The fundamental outlook for gold and silver is excellent regardless of the moves to date, whilst in terms of base metals it is the primary demand from China that is fuelling the growth and not the desire to have a refrigerator in every bedroom or a garage full of luxury cars. During the initial stages of a bull market we are faced with numerous reasons to sell and very few to buy, and this will ultimately ensure that at the peak we are heading "To the moon Alice".
On paper 2004 is shaping up as one of the most critical years in recent financial history, however with rising commodity/precious metals prices the early indications are not good for those wishing for a "soft landing" and/or their debt to miraculously disappear as a result of worm virus
