london likes amx, page-3

SOMEONE in London is not all that keen on our largest locally owned goldminer even though it has just lifted its dividend.

But Newcrest Mining (NCM) is not alone in being culled from the ranks of the favoured by Roger Bade, Neil Pidgeon and Matthew Greene at Libertas Capital.

In their latest gold review, others shunted out of the top tier include Medusa Mining (MML), Kingsgate Consolidated (KCN), Troy Resources (TRY) and Olympus Pacific Minerals (OYM). However, it may be some consolation that these producers are in impressive company, with global majors such as Barrick Gold, Newmont Mining and Gold Fields also given the heave-ho.

Libertas explains that, with goldmining shares underperforming the physical market and exchange traded funds, the analysts considered only those companies that consistently generate a plus-25 per cent return on shareholders' equity. In fact, so thin are those ranks that the bar this time has been lowered to 20 per cent in the hope a few more could improve their performance.

They describe the goldmining scene as "a sector steeped in mediocrity".

Libertas also argues that miners have focused for too long on production statistics and per-ounce valuations. Now, however, these companies will be forced to focus on shareholder returns as competition increases for the investor dollar.

You have to admit they do have a point. How many times has this column moaned about the appalling, widespread lack of dividends in the Australian gold sector or the fact that share prices bear little relation to the gains in the gold price?

Yet more signs emerged over the week that support the gold case.

For one thing, George Soros -- who has bad-mouthed gold over recent years -- was reported to have increased his fund's stake in SPDR Gold Shares, the world's largest gold ETF. The $US21 billion ($20.2bn) Paulsen & Co also reveals it has been lifting its position in SPDR over the past three months and now holds 21.8 million shares.

This, however, may be a trading position rather than a love of those gold bars. It seems every man and his dog now assumes Ben Bernanke will announce a new round of quantitative easing at the Federal Reserve's regular pow-wow at Jackson Hole next month.

But as those readers who have managed to persevere with Pure Speculation over the years will know, we are watching China and its gradual acquisition of more and more gold. Now state-owned China National Gold is talking to Barrick offshoot African Barrick Gold, Africa's fifth-largest gold producer (and with proven and probable reserves in Tanzania of 17 million ounces), about a stake in the company.

On the bright side, Australian investors will be pleased to know they have access to four of the 11 stocks figuring in the Libertas best-in-show list.

The attractive large-scale players include AngloGold Ashanti (AGG) while Philippines operator CGA Mining (CGX) is seen as an emerging medium-scale producer. And "floating to the top of the return tree as their production increases" are Kingrose Mining (KRM) in Indonesia and Perseus Mining (PRU) in Ghana.

Libertas has one final bucket of cold water for the sector: "If a goldmining company is not making decent returns now at almost $US1600 per ounce, it will never do so, and certainly not at our preferred conservative long-term gold price of $US1000/oz."

Gold opportunities

QUITE a different point of view came from another part of London during the week.

RFC Ambrian entitled its latest report on the yellow metal More Golden Opportunities. That's more like it.

Their analysts believe the gold price will remain strong because of QE3, eurozone fears and more buying from central banks. And in most cases, "the market has significantly oversold gold equities".

Northern hemisphere stocks dominate RFC's top picks -- except for the explorer category, where Papillon Resources (PIR) is featured with its 3.1 million ounce resource at the Fekola project in Mali. The analysts believe Fekola will be attractive to investors and predators alike.

But RFC adds a warning: early-stage explorers are likely to be the last part of the gold sector to recover unless a company gets lucky with an exceptional drill result or doesn't need to raise money.

RFC also notes the China story. While we have focused on China's central bank's role in this, this report is interested in the Industrial & Commercial Bank of China's gold accumulation plan. The minimum investment is about $30 a month or 1 gram of gold daily, which pretty well opens it up to most Chinese.

In comments on other Australian goldies, RFC says Ampella Mining (AMX) has been oversold and it's impressed with the Batie West project in Burkina Faso with 3.1 million ounces and open in all directions.

Libertas may not favour Olympus Pacific, but RFC has a "buy" on it with its two producing mines in Vietnam and its three million ounce Bau project in East Malaysia, which has the potential to be a company-maker.

It has a "speculative buy" on Taruga Gold (TAR).

TAR's Kossa project is right next door to IAMgold's five million ounce Essakane mine in Niger and the two projects share the same structure.

TAR's drilling results so far include 4m at 35.52 grams/tonne gold and a head-snapping 278.8g/t.

Taruga is a good example of RFC's point about being oversold. This stock reached 22c in March and is now at 7.5c. And a West African gold stock RFC believes is one to watch is Canyon Resources (CAY), which was worth 70c almost a year ago and now sits at 22c.

Nickel woes

NICKEL at $US15,630 a tonne is a hard sell at the moment. Mention lateritic nickel, the type that requires complex extraction technology, and you have a mountain to climb.

Throw in the GFC, a drawn-out exploration story, present market jitters and you understand why Proto Resources & Investment (PRW) is sitting at 1c today as against 75.5c five years ago.

The company's two advanced laterite projects are Barnes Hill in Tasmania (nickel-cobalt) and Kiefernberg in Germany (nickel-cobalt-chrome). During the week, Proto added 50 per cent of the Kukes laterite project in Albania. While we might be scared witless by laterites, such mining is widespread in the Balkans.

In the short term, raising capital for small laterite projects is going to be a challenge (to put it mildly). The company's cash balance at June 30 was just $111,000. PRW will need to keep a brave face.