August 06, 2009Life, And Stockbrokers, Return To Kalgoorlie.By...

August 06, 2009

Life, And Stockbrokers, Return To Kalgoorlie.

By Our Man In Oz / www.minesite.com

Pinch me, to prove that I am still alive, and that the crowd I see is not an illusion! With only slight exaggeration, that is the overriding expression on the faces of the record roll-call of 1,700 delegates gathered in the outback Australian mining town of Kalgoorlie for the annual Diggers & Dealers forum. Some believe that the recovery on metal and share markets over the past three months has been too good to be true. Others believe that the boom is back. But the vast majority who spoke to Minesite’s Man in Oz as he wandered from the auditorium, into the adjoining marquee, and then out into the cold winter sunlight on the steps of the Goldfields Arts Centre, were uncertain about the future, albeit in a cautiously positive way.

A year of living dangerously, which started with the dramatic collapse of much of the world’s banking system, and led to an equally dramatic collapse in commodity prices, has sapped the confidence of everyone involved with mining. It is good that the nickel price is back over US$8.00 a pound, that copper is heading for US$3.00 a pound, gold continues to test the US$1,000 an ounce barrier, and even zinc, that most horrible of metals, is back over US80 cents a pound.

But, the damage of the crash is fresh in everyone’s mind, even if the Diggers forum can appear to be mysteriously disconnected from reality - not just because it is located on the edge of a desert in the world’s most isolated country, or because the three-day event is a “boys own” outing, but also because if you had gone to sleep at last year’s event, and woken up this week, it might seem as if nothing had happened.

Believe it, or not, exactly a year ago, nickel was trading at US$8.00 per pound. Copper was around US$3.20 per pound. Gold was US$918 per ounce. Zinc was US80 cents per pound, and the Aussie dollar was at US84 cents – exactly where it is today. The symmetry in metal prices and the exchange rate is fascinating, and while most shares have some way to go before they reclaim last year’s price levels, many are close to where they were in the first week of August 12 months ago, and some are actually ahead.

Three companies which gave presentations on day one of Diggers are case studies for a thesis titled: “Crash, what crash?” Mincor, one of Australia’s more successful nickel miners, is trading 43 per cent higher than it was on the opening day of Diggers last year. Silver Lake is more than double, and Sino Gold is up from A$5.02 to A$5.68.

Looked at in a more statistical way, the metals and mining index of the ASX is currently just 14 per cent down on where it was at 12 months ago. Or, to play with the statistics, it is 78 per cent higher than the low point reached in late November last year. Or, if you will forgive stretching the point even further, it’s worth remembering that between last year’s Diggers and the November low point, the metals index plunged by 52 per cent. These examples illustrate the point that a hell of a lot happened between August 2008 and today, even if it might also seem that nothing really happened. And that’s why the crowds gathered in Kalgoorlie can be forgiven for gawking at one another, not unlike survivors from a train wreck. They are walking and talking, but all are wondering what comes next.

To test his hypothesis that we have more questions to ask than answers, Minesite’s Man in Oz conducted two tests of the Diggers crowd. The first test was a simplistic observation of body language and crowd activity. The second was an up-market version of the Vox Pop type of poll favoured by tabloid newspapers, with the people quizzed in this instance all being chief executives of listed mining companies.

Observation provided a glimpse of where we are in the market cycle, best described as a sort of back-to-the-future experience, with everyone wishing for things to happen, but not quite sure where to start. Without conducting a precise head count, it was still fairly obvious that this year’s event was dominated by bankers, stockbrokers, accountants, lawyers and public relations practitioners, all looking for work. Smelling a story, but not really able to find one, was a record media attendance with 56 journalists, photographers and hangers-on registered, the 42 that came last year.

Dinkum diggers were swamped by wannabe dealers. Then came the mobile phone test on the forecourt of the Arts Centre, where at any one time 150 delegates can be seen chatting, smoking, drinking coffee, or speaking on their phone. Well, not quite true. Last year, as the clouds of the crash gathered, perhaps a third of the forecourt mob were on the phone, with worried looks on their faces. This year, at afternoon tea time, Minesite’s Man counted three. Why? The only answer is that there was no-one to talk to back at head office, because there wasn’t much happening.

The second test, the CEO walkabout, was as equally enlightening as it was imprecise, though for investors on the other side of the world it is surely useful to hear from the horses themselves as to how they see the future. One man who has peered into the abyss of failure, and climbed out, is Michael Kiernan. “It’s really been a case of looking around to see who’s here”, said the one time head of Consolidated Minerals. “We’re all cautious. We know the worst is behind us, but we’re not sure what’s ahead. No-one is being bullish, but we are optimistic.”

Gavin Thomas, chief executive of the goldminer, Kingsgate Consolidated, echoed Kiernan’s sentiment. “This year it’s not about discovery”, he said. “It’s about consolidation. There are far too many bankers about, all looking for deals. There’s not much spruiking by the miners because not many have anything to spruik about. Basically, there’s not a lot new to say, but the event remains a great place to re-establish contacts.”

Peter Harold, chief executive of the nickel miner, Panoramic Resources, said the past few months had been all about watching the nickel price return to fair value. “The question is really whether fair value today is the same as yesterday, and I suspect not”, he said. “Average grades in the world’s nickel mines continue to fall, and while US$3.50 per pound might have been fair value a few years ago, today it is probably closer to US$7.50 per pound.”

Mark Ashley, chief executive of the goldminer, Apex Resources, managed to avoid Minesite’s Man until they shared a plane back to Perth late on Monday. He flagged the potential for growth via acquisition, and is considering a number of strategic moves.

A similar view was espoused by Silver Lake chief executive Les Davis, who was looking very dapper in a pinstripe suit, as befits a man who has orchestrated a very successful development story. If the suit spoke of success, Les’s view of the world is still cautious, though. “I’m not convinced that we’re through the worst of this market”, he said. “It’s good, but the banks are still in trouble. Gold is a good place to be in these times.”

John Jones, founder of Troy Resources, was equally optimistic about gold, and delighted that his faith in Troy’s Sandstone operations has been confirmed by a fresh discovery which will add years to that mine. Also occupying Jones was the work of a private company he is helping to build, Altan Rio, which has a promising discovery in Mongolia. Like most other leading Australian mining executives, Jones is optimistic, but not excited. “We’re on the way back, but there’s still a long way to go”, he said.

That view was repeated by most of the 14 chief executives who, perhaps unwittingly, participated in Minesite’s Vox Pop, among them Tim Goyder from Chalice Gold, Ian Mulholland from Rox, George Jones from Gindalbie, John Lewins from Platinum Australia, Stephen Everett from Australian Solomon Gold, and Kevin Willis from Flinders Mines. All can see the light ahead, even if they remain uncertain about how fast they are travelling towards it.