Tim Boreham article

Nice little write up in The Australian this morning:

Another rise but beware of false ferrous bottoms

Fortescue (FMG) $2.45
A new dawn, or the risk of a double bottom, for iron ore?
Our ferrous stocks yesterday took a breather, despite the iron ore price chalking up its eighth session of successive gains.
At just under $US60 a tonne, the price is well above this month’s nadir of $US47/t but well below the prevailing level when many of the second-string projects were conceived.
The danger is that the rebound will save the producers who should have succumbed to mining’s version of natural selection.
The supply dynamics remain weak and if anything investors are anticipating Chinese stimulus that has not yet occurred. Lest we forget, iron ore is used to make steel and steel alone and the Chinese are pretty much done with skyscrapers.
The Daily Reckoning’s markets guru Greg Canavan blames excess liquidity for enabling Fortescue Metals (FMG, $2.45) to raise $US2.5 billion of debt in the US last week. “While that might be ‘good’ for Fortescue in the short term, it’s not good for the iron ore industry or the iron ore price,’’ he writes.
In the meantime, BHP Billiton (BHP, $32.44) and Rio Tinto(RIO, $58.79) will continue their massive, low-cost expansion plans.
Criterion rated Fortescue a sell at $1.83 on April 15 and has urged punters to avoidthe small fry.
We hate to sound boring, but the safest exposures are through the diversified BHP and Rio Tinto.
Aguia Resources (AGR) 6.5c
Having raised a poultice for its potash exploration and coming up short, Aguia now has turned its gaze to its Tres Estradas phosphate resource in southern Brazil’s corn and soy growing belt.
“We have cleaned up the sins of the past and refocused on the key assets and re-laid plans in a clear succinct manner,’’ says Aguia’s new Canada-based CEO Justin Reid.
Potash and phosphate are both sources of fertiliser, with the former gaining investment favour on the back of the Owen Hegarty-backed Highfield Resources (HFR, $1.82).
Both commodities play along to the mining-to-dining theme.
Aguia this week raised its Tres Estradas resource estimate by 130 per cent, to 70.1 million (indicated and inferred). This would support at least two decades’ production of single super phosphate (beneficiated ore), at an annual rate of 350,000 tonnes.
There’s still some way to go, the next step being a full prefeasibility study and then a bankable study by the December quarter.
Reid says management is targeting capex of less than $US200 million ($252m) and an internal rate of return in the high 20 per cent bracket.
Unusually, Reid is also the head of Canada’s Sulliden Mining, which invested $2m for a 15 per cent stake in October.
Earlier this month Reid took over from David Gower after a $1m rights issue fell short.
The deep-pocketed Sulliden does not want its stake diluted, which means it will contribute to an inevitable raising to fund the BFS.
Reid says Tres Estradas is attractive because the surrounding cropping belt has poor soil and there’s no other local source of phosphate.
Aguia is a poor man’s alternative to Highfield shares, which have tripled since the start of the year on the back of the promising Muga-Vipasca project near Pamplona in Spain. Talk about running of the bulls.
Meanwhile, Minemakers (MAK, 7.5c) yesterday was spruiking its plans to buy a rock-phosphate venture in the Republic of Senegal, in an $8m-ish scrip deal.
Minemakers hopes to extract 500,000 tonnes over the (short) life of the project, benefiting from the $7m of work expended by the previous owners.
Meanwhile Minemakers hasn’t given up on its billion tonne, multi- billion dollar Wonarah project in the NT. But to describe this one as a slow burn is an understatement and we long ran out of patience on this one. Avoid.
Aguia is a spec buy.
GrainCorp (GNC) $9.97
As most NSW folk would attest, it’s been rather too damp of late.
The rain though is liquid manna from heaven for growers in the eastern seaboard grain belt — and a fillip for the grain handler.
In presentation notes to the ASX yesterday, CEO Mark Palmquist passed up on the opportunity to revise full-year earnings for the year to September 2015. In February GrainCorp forecast a net $45-60 million and ebitda of $240-270m (both pre-abnormals).
If the weather gods behave, earnings prospects look much brighter for the 2015-16 year.
The danger is that the Bureau of Meteorology now expects a 70 per cent chance of an El Niño (dry) trend to set in as early as June. Let’s hope that come harvest time morose growers aren’t being photographed in paddocks of stubble.
We’ll risk a buy call.
The Australian accepts no responsibility for stock recommendations. Readers should contact a licensed financial adviser. The author holds BHP Billiton shares.