Saw this thread on the general section!!May be of interest to...

Saw this thread on the general section!!

May be of interest to you guys...
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Mining juniors glitter
Robin Bromby
December 19, 2005

RIVERS of cash are about to start surging into producing junior mining companies as metal prices look set to continue to be strong during 2006.

Some companies are in a position to take advantage of cash margins of more than 100 per cent on spot prices -- though investors have yet to be excited by this prospect, preferring instead the chance of short-term gains on new floats.

A survey by Far East Capital, which charts 140 resources companies daily, shows that the real money in 2006 is going to be in the emerging metal producers.

FEC chairman Warwick Grigor said this sector offered great opportunities for investors as share prices had been largely unresponsive to what was happening in the commodity markets.

"Investors need to be pinched to understand the importance of high metal prices," he said.


This was shown by the still modest share prices. Kagara Zinc, which, based on that metal's price last Wednesday, has a cash profit margin of 220 per cent on every tonne produced, last traded at $1.90.

Troy Resources, making 306 per cent on the gold price at December 15, was trading at $3.03.

Dominion Mining, one of FEC's top-rated junior miners, closed on Friday at just 78c.

"If you look at how stocks like Lihir and Newcrest have run strongly, it's only a matter of time before the smaller stocks move," Mr Grigor said.

And the news for next year is looking good.

Goldman Sachs on Friday raised its forecasts for base metals in 2006, predicting an average $US1850/tonne for zinc (up $US500 on its previous estimate), $US4750/tonne for copper (up $US2000) and nickel $US13,675 (up $US350).

The same day, ABN Amro lifted its zinc estimates for 2006 by 28 per cent, and Morgan Stanley upped its projected average for next year by about 20 per cent to $US1874/tonne.

The fall in gold, caused mainly be speculator profit-taking, stopped on Friday night with the metal finding its feet again at $US503.24 an ounce -- a still very healthy $674/oz for local producers.

In the six weeks to December 15, when FEC did its calculations, zinc prices had risen by 31 per cent, copper by 18 per cent, lead by 17 per cent and gold by 11 per cent.

But Mr Grigor said the most exciting news was the potential profits on spot sales.

In six weeks the cash margins at junior producer Agincourt Resources had doubled with the soaring gold price.

But companies that had hedging in place were being compromised because they could not take full advantage of the new prices.

"Investors are better off with the unhedged producers," he added.

Mr Grigor said several of the companies he charted were now laying the groundwork to join Jubilee Mines, Oxiana and Consolidated Minerals in the league of miners with market capitalisations between $500 million and $1 billion.

Straits Resources was now nearing that target with both coal and copper production increasing, and with the start-up of gold mining in Indonesia.

Among the gold producers, FEC gives the "excellent" tag to two companies: Dominion Mining, even though it has hedging; and Troy Resources.

In the September quarter, gold production by Dominion was up 56 per cent while cash costs fell by 40 per cent. Drilling had increased reserves by 77 per cent.

"It doesn't get much better than this," Mr Grigor said.

Gold production at Troy Resources was up 90 per cent and costs down 20 per cent on the June quarter.