tony locantro ~ australian explorers review

Afternoon all,
Here's BudFox's latest offering...another good read IMHO. Probably a slightly biased observation as I hold positions in most stocks mentioned.....the exceptions being TRO & IGO, with TRO suject to change. Grin.
Cheers all,
Carl.

Australian Dateline: March 8th.

Tony Locantro
I must admit for someone who considers himself a longer-term speculator, awaiting the overnight movements in gold and silver to load up can be a nerve-wracking experience. This morning was quite a pleasant surprise, however with the volatility in the spot prices of gold and silver I doubt anyone can claim victory either way for the next leg just yet. Whilst we have been in a bull market (initially by stealth) for sometime the gap between the gold bulls and bears is widening, whilst you do not see enough opinion on silver to harp on the issue. I guess the bears would take heart that we are a fair way off $430, whilst the bulls would look at the $270 US level (gold did an awful lot of work around this price) and calculate how a 50% increase give or take in the gold price has been translated to the bottom line. In Australian dollars the gold price has only just stabilised (mainly due to our dollar taking a short-term hammering after rates were left unchanged/USD strength), and in comparison to where our major producers were this time last year many have gone backwards at a fair clip or done very little in terms of reacting to the major barometer (USD gold price).

Whilst the traders continue to frenzy over decent exploration results, the fact remains that once the dust has settled the re-ratings at the end of the day have been minor and well short of the lunacy of January-March 2000. Sure some market capitalisation's have forged ahead quite strongly in some cases, however we had a unique market only four years ago where a vast number of explorers were going dotcom and the sector was literally decimated once the music stopped.

Some have said we have not put enough distance between the current run and the tech boom to justify what is occurring in the speculative/junior resource sector. I guess many are scared at the longetivity of this purple patch, however investors tend to worry far too much about what they may end up losing instead of the opportunities that lie ahead to take them to the next level. The mentality is that anything that is going up should quickly collapse and this includes commodities that are doing nothing than returning to their average longer-term trading ranges. In a nutshell this spells greater volatility.

In 2003 the RIU Explorers Conference main theme was "Nickel" and in 2004 it was a combination of copper, China and Iron Ore. I managed to sit through 30 presentations from a vast array of Australian juniors and mid-caps and by the end of the event managed to scribble through three notebooks that would require the services of a Doctor to translate it for me. Early in the event a number of companies managed to present the "China" story quite well with their appetite for Iron Ore expected to double from current levels to around 380mt by 2010. Whilst their rate of economic growth is expected to slow in the near-term, the major focus now is on sustainability without having it spiral out of control in a classic boom/bust cycle. I tend to set my alarm clock and radio station in the dark and luckily last week landed on a European station where I woke up to a very interesting discussion on how China would bridge the wealth gap. This surely cannot involve stripping the wealthy of their right to work and party hard?

We do not require in an Internet refrigerator in every home or village, but simply to have the 20 million odd that turn 18 every year take up the opportunity to own a computer, car, mobile phone and other gadgets we take for granted even if they are a few years behind. I adopt this strategy when purchasing a car as I always look to buy a 3-4 year old model with low kilometres and let the previous owner cop the brunt of the depreciation. At the moment I look the look of the new Falcon but am happy to be behind for the next four years then hopefully pick one up for $15k-$17k. (Half the purchase price of the new model). I shudder to think of what may happen in this commodity cycle if the Chinese really step up to the plate after getting a taste of good old Western style consumption. There was a feature on China in today's West Australian that labeled it a "Commodities Revolution" with one analyst calling for China to be a powerhouse for the next 40-50 years.

Many producers and explorers for that matter would never that predicted that lead would even come close to overtaking zinc price wise, or that copper would see $3,000t in early 2004. Apart from a massive inflow of funds into the nickel sector, the other base metals have seen very little in the way of an exploration spend and even if substantial new discoveries are made as a result of technological advances you cannot simple bring a new copper-gold project into production with a flick of a switch. Drilling enough holes to come up with an inferred resource takes time, then you have to move into the indicated/measured status, complete a scooping study if need be then go through native title, a pre feasibility, bankable, financing then 6-12mths in the construction phase before you produce a cracker. At the top of the market there will be plenty that will be in or near production, however it will be more a case of juniors paying the majors top dollar for their non-core assets as a belated invitation to the party.

In order to have a mine you need, the right management, grade, and also the ability to capture the hearts and minds of the local community. My selection of emerging producers to an extent relates mainly to grade, however a copper deposit, which at first glance may appear to be low-grade, may indeed have some pretty handy gold credits that push it well into the profit zone. There may only be a handful of projects in Australia yet to be discovered and price accordingly by the market, however once you move offshore some substantial resources are still adding very little in terms of capitalisation. The way things are moving ahead there are quite a few now that end in "stan" with plenty more to come.

NEW SILVER OFFERINGS

It would appear $7.00 (US) is not high enough to tempt some into providing Australia with another choice when it comes to silver. Apart from Malachite Resources (MAR) and Tri-Origin (TRO) there has been nothing aimed directly at the silver bugs. If indeed silver managed to become one of the major themes at a mining conference I might ease off the 3-4 year consumption strategy and split that pair of tens as a selfish gesture. I wonder if there are any financial journalists out there preparing a feature story on the Australian Silver Sector?

BELIEVERS VS NON-BELIEVERS VS PENGUINS

Last week saw some very interesting battles as a wave of panic selling (mainly from retail and short-term traders) moved into the precious and base metals juniors. One pleasing aspect was that there was sufficient buying to take out the selling at or slightly below the prevailing market prices and spreadsheet damage was minimal. This activity to me indicates a decent break up or down in the short-term which would be a welcome event regardless of the direction. Volatility provides the opportunity rather than chasing runway stocks, which then become long overdue for a sizeable hit once the buying is exhausted. From what I have seen on the screens I am biased towards the upside, however in our core plays they are more suited to longer-term investors, we hold a reasonable percentage of the tradable stock, and as a result the sell-off has been a non-event. My clients have only recently started to appreciate the value of these companies in a choppy trading environment and the general attitude is, "I am in this one for the long haul, let the short-term traders sell and if it is overdone I am going to get another opportunity to pick it up."

Regular readers of my essays may feel I am somewhat on the crazy side for not liking booms/bubbles, but in reality they are destructive events that will send many into financial oblivion. Sure I felt warm and fuzzy on Friday afternoon sipping on boutique beer and downing some fancy seafood after some recent success on the IPO front, but I do not want to be at it full time because once the thrill has gone where do you go next? For me dreams of being filthy rich one day would probably be better than actually getting there. It is a very pretentious industry and sitting there with another broker who was dressed to attend a rodeo it was obvious we still have some ground to make up in the etiquette and grooming stakes. Maybe I come across as a miserable so and so but to be honest when you think seriously about things most of what we see in the upper levels of society is one you know what. I have got more bang for my buck out of one Audioslave CD that set me back $20 than any la-di-da gismo I felt I had to own to conform.

Whilst I have driven around the block several times to get this message across it is not as complicated as it may seem. If we indeed get that speculative blow-off, keep a level head, do not try to live beyond your means (those that are regular's will only laugh at you anyway), and get the hell out before the proverbial hits the fan. Pretty simple hey? For some reason I doubt we will see much of a change from 2000, the mid 1980's or the 1970's for that matter. They will be still trying to work out how they were fleeced in different sectors long after we are gone. The reward for successful resource stock selection is of course money, but for me picking up a rock with an almighty percentage of nickel in it doesn't feel all that bad either. (I was told to soak it in vinegar but wasn't totally sure the guy was taking the piss).

After wading through gazillions of viruses, claims singles want to meet me, cheap ink cartridges, some real estate bargains on another planet and numerous email lottery wins I found some words of encouragement from some well-known and respected analysts as something I will certainly take on board and learn from in the writing game. Anyway enough ramble, time to provide some updates on the junior exploration portfolio I put together for 2004. I have tried to keep it as brief as possible and not to dazzle everyone with wonderful numbers. The associated websites have been provided for further reading.

My clients have considerable holdings in the stocks mentioned below at various levels. The information provided is for general use and as a guide for further research. It should be construed as advice to buy/sell or hold the stocks mentioned below.



MEDUSA MINING (MML) 30.5C/ 49C (Trading Ex Entitlement 1:2 option at 1c)

The package value of MML is now in the range of 64c-65c after listing in late December 2003 at 20c. The company is exploring the Saugon Gold Project in the Philippines in partnership with Philsaga in search of high-grade epithermal gold veins. Results from the latest round of drilling are due in the near-term, with work in Tasmania also scheduled to commence shortly. The share structure (17m tradable) has been a major contributing factor to the strong performance thus far and now I expect the shares to be result/news driven once the option issue is totally absorbed.

(I have a direct interest in Medusa Mining)

www.medusamining.com.au



TRI-ORIGIN MINERALS (TRO) 24C/ 29C

TRO have just managed to break through stiff resistance at 25c and were trading briefly on Friday at 30c. The company has just announced the appointment of Julian Malnic (founding Chairman Sydney Mining Club), as the new Managing Director and is preparing to drill at Lewis Ponds (350,000oz gold and 18m ounces of silver). After reviewing the lean pickings in the Australian Silver Sector I came to the conclusion that value wise TRO was the standout in terms of realising some or all of their exploration potential. Woodlawn also has some merit on the silver front and I am looking forward to renewed exploration in this region once the next phase at Lewis Ponds has been completed.

(I have a direct interest in Tri-Origin Minerals)

www.trioriginminerals.com.au



GOLDEN CROSS RESOURCES (GCR) 7.4C/ 8.4C

GCR have released two batches of promising drill results (Sunny Corner and Yellow Mountain) from the ten planned or currently underway. A recent share purchase plan at 8c has seen some heavy selling/trading after each announcement has been released and as a result the share price has failed to hold the 9c level it has a habit of reaching before nodding off. The gold anomaly at Yellow Mountain (most recent release) is worth putting away in the memory bank for the next phase of drilling.

www.goldencross.com.au



UNIVERSAL RESOURCES (URL) 13C/ 18C

URL came up with 94m hit @ .94% copper at their Roseby Copper-Gold Project in QLD. I told my clients we were 0.6 of a percent away from seeing the stock 20c bid at the time, however with the recent copper price movements we got our wish anyway and probably sooner than expected. URL is working furiously to move into copper-gold production in QLD on two fronts. (Sulphide 70% URL, 30% BSG (Bolnisi) and oxide 70% BSG and 30% URL). With the support of Yunnan (China's largest copper smelting company), and a buoyant if not volatile copper market their efforts may yet be rewarded. The expected resource upgrade came in with a 38% increase in the base, and with Roseby to be drilled out aggressively once the wet season dissipates there could well be a steady flow of news coming out of the company.

www.universalresources.com.au



MALACHITE RESOURCES (MAR) 19C/ 26C

MAR have just completed two placements to fund the next stage of drilling at the Tooloom Gold Project in Northern NSW. It was interesting to note that Straits Resources (SRL) took up some of the shares to increase their holding to 4.95%. SRL have only recently announced their intention to acquire the Hillgrove Gold Mine (also in Nth NSW), which may mean something to someone.

Tooloom in a recent MAR presentation was compared to Cadia in its early stages and now MAR have to go out and "See through it with a rotary lie detector". The Conrad Silver Project has been but back due to title issues, and the enthusiasm surrounding Tooloom.

Disclosure: Clients have applied for shares in the recent capital raising at 20c. I managed to forget I had some spare funds in the bank and didn't take up any personally as a result.

(I have a direct interest in Malachite Resources)

www.malachite.com.au



RAMELIUS RESOURCES (RMS) 13C/ 12C

Ramelius were just awarded the "Dog on the tuckerbox" award by Resource Stocks Magazine for being the worst resource float in recent IPO history. This can largely be attributed to the timing (aimed for late 2002) when apart from Malachite there were not too many others trying to get away in a disinterested market for new IPO's. They are now in the process of finalising a one for one rights issue at 11c to fund a major drilling campaign on their nickel and gold projects, which is set to commence in the near-term. RMS has been steadily building up their tenement package with very limited fuss, fanfare or market recognition, and maybe their acceptance speech can be held back for the time being.

(I have a direct interest in Ramelius options RMSO)

www.rameliusresources.com.au



HERALD RESOURCES (HER) 68C/ 78C

For me Herald were the standout presenter at the explorers conference, however companies nearing completion of a bankable feasibility study on a zinc-lead (minor silver credits) project in Indonesia tend to find a position one or two off the rails and go to sleep. An exploration budget of $2m has been earmarked (50% JV with MPI Mines) for the Coolgardie Gold Project, whilst they have announced the intention to spin out their other Australian assets into a new vehicle to focus their attention on Dairi.

(I have a direct interest in Herald Resources)

www.herald.net.au



ARAFURA RESOURCES (ARU) 16C/ 15C

The planned exploration campaign at Nolans Bore (Rare Earths/Phosphate) has been delayed by rain and as a result the stock has been drifting lower on light volume. The Coronet Hill Project may yet prove to be the sleeper in the portfolio if the appetite for silver continues to grow.

(I have a direct interest in Arafura Resources)

www.arafuraresources.com.au



PLATSEARCH (PTS) 9.2C/ 12C

Diversified minerals explorer PTS has been awfully quite on the news front, after recently raising $580,000 through a share purchase plan at 11c. When you combine dilution with no news your not going to cook up a raging share price. PTS could be considered a high risk/high reward exploration play that is result rather than commodity driven as they have interests across base and precious metals to mineral sands and uranium.

www.platsearch.com.au



INDEPENDENCE GROUP (IGO) $1.08/ $1.19

I had my second visit to IGO's nickel mine only last Friday and noticed that on this occasion we had to walk a lot further to where the mining action was taking place. (This has been reflected in the company's profit/production performance to date). The miners seemed happy to be there, the underground BBQ was an enjoyable experience and drilling is continuing in search of another ore body. The stock has held on extremely well despite the recent shellacking the nickel price has copped. IGO's other exploration assets (predominately gold) should not be dismissed despite removing "Gold" from their name and replacing it with "Group".

(I have a direct interest in Independence Group)

www.independencegroup.com.au




"Volatility not variety may well be the spice of life"



8 March 2004

Disclaimer

I have direct/indirect holdings in the stocks listed/mentioned above. Clients have considerable holdings in each of the stocks and may change these holdings without notice. The information on each stock has been derived from ASX reports, company discussions and a site visit to Long Victor in 2002 (Independence Gold). Each of the stocks listed is to be considered as speculative, and may not be appropriate for individual investors. No buy recommendations have been provided on the listed stocks, and the opinions on each are those of the author only. It should also be noted that some of the stocks may have very low levels of liquidity and may result in significant percentage rises and falls. Please conduct further research and consult your financial advisor before making an investment/trading decision.

About the Author
Tony Locantro is a Perth based Senior Private Client Advisor specialising in the junior resource market. He is the author of "The Green Room, A Guide To Speculating On The Australian Stock Market" (available on request) and presents on resource stock investment. He has been a contributor to a number of precious metals and market related forums.

If you would like further information or are interested in becoming a client I can be contacted at [email protected]