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SPECS AND ELEPHANTS

Tony Locantro

During my six years predominately spent as a junior resource advisor I have never witnessed a tax loss-selling period so brutal yet stunning in its grand finale. A colleague in the industry for twenty years made similar comments but welcomed the opportunity to accumulate not only value but also blue sky for prices he previously thought would be unattainable.

I underestimated the selling pressure to the point where during the latter stages my client base could only watch in awe as their paper profits were evaporating around them and this brought the onset of tension amongst the ranks. Despite making the call that "Fundamentals and prices were violently out of sync" I spent the majority of my time defending my investment rationale and reassuring nervous investors that it was only a temporary aberration.

LURKING BENEATH THE SURFACE

One of the advantages of being passionate about my work and writing is that through the contacts you make and the colourful identities you often hear about you can sense when there is movement at the station. Over the last two or so weeks I have witnessed a major shift in attitude and activity from a number of stock promoters and project generators to the point where I am expecting the run into the Christmas period to be quite exciting and rewarding if your on the right side of the ledger. As we witnessed in the Nasdaq boom listed company shells are again returning to the spotlight as the land and resource gathers pace.

AFTER CHINA WHERE TO NEXT?

After projects were snapped up in Australia a number of juniors headed to China and although brief we had a mini-bubble as a result in companies such as Michelago, Tianshen Goldfields, Leyshon Resources and Apex Minerals. In my opinion the next frontier apart from South East Asia is likely to be Europe as companies scramble for tickets in the draw. Countries that are likely to open up include Germany, Austria, Italy and Greenland, whilst Eastern Europe will remain a popular destination albeit far too early in the cycle to capture the attention of investors. South America and in particular Panama is also a location that offers significant potential and it would not surprise to see some major developments in the region.

If the boom on this occasion manages to get out of hand companies will be then likely pegging tenements on mars, the moon or in a Hollywood basement. Like the Tulips, South Sea Bubble, 1920's, Poseidon and Bre-X we can never underestimate the possibility that the current resource bull market outshines the 1985-1987 run that saw a number of stocks easily twenty bag and then some.

THE FIRST LINE OF RESISTANCE IS ALREADY SET

Many would think I am crazy in stating that I know who the first line of resistance is in many of the hammered Aussie juniors when they start their long climb back. One investor that is widely regarded within the industry as being the greatest speculator in the country simply sat back with very deep pockets and absorbed millions of shares in companies trading around their cash backing with resources in the ground. As he kept getting hit the bids were simply replaced at lower levels and the sellers accommodated him as they rushed for the exits or their last chance to crystalise a tax loss. Many at the end of this cycle are going to be facing enormous tax losses and associated debts so with the benefit of hindsight I wonder why they are even bothering taking their medicine now. I have started running into this speculator on the sell side already and whilst I see stocks potentially multiplying several times over, he is quite happy to take the 30-40% profits and keep the wheels turning. One need not bother approaching him to question his selling regardless of the fundamentals as it is these professionals that tend to make a lot and leave millions on the table, however as every cycle comes and goes their capital base increases exponentially. The same scenario occurred in the Nasdaq boom as the first line were content taking up to five times their money prior to the silly season that saw a number explode before the bubble ultimately burst.

PYRAMID BUILDING

Many would have read the negative press and warnings surrounding pyramid schemes such as the pilot game, party girl and purchasing worthless items where you are guaranteed a sale at a much higher price in a years time. Speculative bubbles have similar characteristics and I witnessed this first hand in 1999-2000. I started my career with around fifty clients and watched my base grow to just under five hundred before April 2000. I did not advertise my services, conduct mass mail outs or bombard my local area with pamphlets. It was simply a case of word of mouth as clients making money told their relatives and friends and the pyramid was well under construction. At this stage of the cycle my referral business is growing quite nicely, however I am yet to be swamped by the desperate and penniless. I have set a top of the market reading of 950 clients for this cycle (this may change) and am more than happy to keep my readership informed of when such an illustrious event takes place.

I have noted the character traits of good and bad traders and am pleased to announce that the real "tossers" are still deciding what to wear to the party. Good traders are humble, caring, law abiding citizens who take their ethics and honour seriously. They are the types that will openly disclose their positions and price paid in order to protect the innocent from the horrific losses the majority cop at the end of any cycle whether it property, art or the stock market.

"One of the greatest barriers to achieving great success and admiration is the existence of a conscience"

I wonder if LA based cosmetic surgeons when conducting these miraculous makeovers can remove ones conscience and how much would they charge?

THE EIGHT ELEPHANTS

After coming up with original names such as the "Fab Five" and "Sensational Six" I arrived at a list of juniors I adoringly refer to as "The Eight Elephants". Whilst their discovery ultimately was fairly cut and dried I still feel it has taken me ten years of lessons and copious amounts of research to readily identify such opportunities. Looking back at when I released the list to clients some share prices are lower, a few have inched higher but generally they have done jack on the scoreboard. Share prices have a habit of deterring chartists and weak hands from entering early, however as I will cover below the fundamentals of many of these companies have improved dramatically and all that is missing are major share price re-ratings.

I should make it also perfectly clear that "I am not a chartist (I threw out my graph paper in 1994) and have zero interest in short-term trading the stocks listed below".

MALACHITE RESOURCES (MAR) 18C

Hole 3 at Tooloom is in the breccia zone, management has indicated they are "excited at what they are seeing" and the market decides to pineapple them. When Malachite announced the Tooloom discovery the shares ran from the high-teens to 28c and held this level for sometime before declining pretty much in line with the spot silver price. Tooloom will be revealed in two-three weeks time as a total dud, a moderate success, or potentially one of the biggest new gold discoveries in Australia. I can understand speculators selling out at such a critical stage (similar mentality to selling out junior oil stocks as they hit the pay zone), however MAR also have announced a major tin JV initiative with BHP and Tasgold in Tasmania, whilst their Conrad Silver Project lurks in the background. All in all a pretty decent safety net has been constructed in the circus tent that is the speculative market. I am yet to witness the impatient and those afraid of trading halts make a killing on the market as yet and I guess one must question their investment goals before purchasing such situations.

www.malachite.com.au



UNIVERSAL RESOURCES (URL) 15C

On Thursday URL announced a copper intersection of 186m @ 2.40% and the market decided it was only worth 2c to the share price. Sure it was not the discovery hole (Roseby is already shaping up as an elephant), but it managed to make MNR's hole (17c to $3.20) look run of the mill in comparison. This one has been frustrating for all concerned, however on Friday I sensed that this stocks profile is about to change for the better.

www.universalresources.com.au



ARAFURA RESOURCES (ARU) 15C

ARU have now stated that Nolans Bore is potentially a world-class REE/Phosphate deposit (app 140kms from Alice Springs) yet they are barely trading above cash backing. Maybe it will be the high-grade gold targets at Frances Creek or Kurinelli that will attract the markets attention. Further results (diamond and RC) are still pending from Nolans Bore and their quarterly report is expected to make interesting reading. A difficult stock to label and this may be contributing to the lacklustre share price and market capitalisation.

www.arafuraresources.com.au



HERALD RESOURCES (HER) 68C

HER have managed to trade at $1.00 after bonanza gold hits at Coolgardie, yet have perched themselves on the rails and nodded off to sleep. The Bankable Feasibility Study on the Dairi zinc-lead project is nearing completion, (6mt at 22% zinc equivalent) and the Sandstone tenements have been sold off to Troy Resources for cash/script with a mining royalty just in case but the market simply is not interested. I sat through Terry Allen's presentation at the Sydney Mining Club on June 3 and noted that the audience seemed more excited with a project I have never really included in the equation (Meluak). Regardless of the dormant share price investors should take heart from the fact that even the almighty Oxiana and Kingsgate did SFA for years and had similar struggles with such momentous share price levels (70c).

www.herald.net.au
www.coronagold.net
www.jaguarminerals.com.au



SANDFIRE RESOURCES (SFR) 25C

SFR has been one of the fastest elephants in terms of recovering from the June 30 25% off everything sale. Two major base metals projects are to be drilled as target definition work continues at a steady clip. The shares are now trading ex-entitlement of a 1 for 2 option that later converts into a contributing share. (One of the most complex on the spec market). Sandfire is one stock I am afraid not to own and one I would definitely include as a roughie with a decent show at longer odds.

www.sandfire.com.au



MEDUSA MINING (MML) 37.5C

After racing to 60c shortly after listing MML's share price has drifted lower post 1 for 2 1c option entitlement and a slowdown in the news/result flow. Saugon has now been referred to as a gold-silver project after grades up to 5661 g/t silver were discovered in high-grade gold veins. There are currently three drilling rigs working the Saugon Project as the company continues to move closer towards gold production with their JV partner Philsaga. The nature of the mineralisation and experience required mining it leaves MML as a niche player in the high-grade gold and silver vein systems that dominate their region in the Philippines.

www.medusamining.com.au



JAGUAR MINERALS LTD (JAG) 20C issue

JAG is set to list on the ASX this week and is the spin-off of Herald Resources Australian exploration tenements. The company's major project, Balfour is a tin and copper project in Tasmania around 50kms from where Malachite, Tasgold and BHP just signed a major tin related JV.

(I raised $223,000 for the Jaguar Minerals Ltd IPO and was paid a 5% fee for my services)

www.jaguarminerals.com.au



TRI-ORIGIN MINERALS (TRO) 18.5c

TRO's share price has suffered as a result of a declining silver price and slow progress at their Lewis Ponds gold-silver project in NSW. Tax loss related selling appeared to hammer TRO after a recent all-time low of 12.5c was set. The first two holes from the project (350,000oz gold and 18m ounces of silver) are set to release in the near-term, whilst the critical third hole is nearing completion.

www.trioriginminerals.com.au



THREE OTHERS IN THE RUNNING

Whilst the "Eight Elephants" form the backbone of my personal and clients holdings I also cover three other companies that are less advanced on the exploration front but are showing encouraging signs early in their listed lives.



PARADIGM GOLD (PDM) 9C

After listing at 20c PDM's shares have also been susceptible to their fair share of tax related selling and the initial disappointment at Guyra. The company is trading at its cash backing level ($3.5m), it is due to embark on a drilling campaign around 10kms from NCM's Cadia Project and the management team is largely ex Savage Resources. (Taken over by Pasminco for $450m cash).

www.paradigmgold.com.au



LODESTONE (LOD) 8.7C

LOD dominate the old Mt Morgan region in QLD, have one of the strongest technical teams I have seen for a junior explorer and are only capped around $2.5m fully diluted with just under $1m in the tin. The company has also secured ground in the vicinity of NCM/SED at Cracow.

www.lodestonex.com



RAMELIUS RESOURCES (RMS) 8C

Despite only recently raising $2.5m at 11c per share and releasing positive news on their gold projects, RMS was also harshly treated during the tax loss season. The Black Cat deposit is nearing a mining decision, drilling is continuing at Wattle Dam, whilst the company has built an excellent ground position in the right address prospective for both gold and nickel.

www.rameliusresources.com.au



(there was also a table but it won't post)



11 July 2004