ASX LISTED GOLD PRODUCERS 12MTH SCORECARD

AUSTRALIAN SILVER SECTOR

There are a number of companies listed on the ASX that are exposed to silver through base metals projects (zinc-lead-copper), however up until the recent listing of Malachite Resources (MAR) the silver focus was predominately on Macmin Silver (MMN) which has a yearly range of 4.7c-15c (current price 11.5c).

WHY THE JUNIORS ARE NOT PERFORMING

• Lack of stock rotation from the major producers. The rising POG has lifted investor's expectations for the majors and many refuse to sell out at current levels and direct holdings towards the mid-caps and juniors.
• Doubts over the sustainability of the rally have kept many people holding onto producers with income streams to provide a safety net.
• Longer-term gold bugs would be close to if not already fully invested and waiting for new money to provide the impetus for another kick.
• IPO market slowly improving and the quality issues are proving to be attractive. Funds are being held back in the expectation that conditions will continue to improve.
• Lack of a major regional discovery in Australia despite a steady flow of encouraging results.
• Traders are chasing high volume stocks across a broad range of sectors and this activity has taken some of the limelight away from gold equities. Some stocks are now trading 100m shares per day, and the trend is similar to the frantic warrant trading prior to the Nasdaq bubble.
• A minor recovery in the junior tech sector has seen funds and interest directed towards it.
• Fears that the perceived "war premium" for gold could be removed at any time in the near future. The press are concentrating on the Iraq issue as opposed to the negative correlation with the $US.
• Possibility of the Dow falling four years on the trot, and the debacle of 2000 has seen many leave equities in droves in favour of real estate and for some the prospect of actually getting a job after becoming a full-time trader.
• Fear that a US led recovery in equities (as predicted by the majority of mainstream analysts) will dampen the interest in precious metals.
• The price rises to date in the majors have created a belief that it is too late to enter and some are resigned to the fact that they have already "missed the boat".
• The market capitalisations of many companies are still miniscule and are well below the level required to attract institutional interest. Some of those with the highest percentage rise from their lows listed in the table above have been successful in attaining significant institutional support after being predominately "retail" stocks.
• Those that are set cheaply are waiting for someone else to "take the ball up" based on their reluctance to "average up" in the fear that the stock may fall. The influx of new funds has been insufficient thus far in this regard.
• Stale bull selling is evident in a number of speculative situations, where those holding excess stock are literally "feeding the ducks". This has seen an increase in volumes whilst share price moves are limited until the stock can be absorbed.

Market Caps far from bubble levels

Looking through the junior gold/silver explorers it is evident that many are still trading with market caps below $5m with some around the $2m mark. In the event of a market "bubble" you could ascribe a minimum cap of $10m to the sector before it effectively became out of control. Whilst the market depths of the junior explorers are showing healthy signs of improvement their volatility has been somewhat limited. It would appear that a number of situations are being gently accumulated (as per some of the producers 12-18mths ago) in anticipation of the next stage of the bull market.

IN ORDER FOR THE SPECS TO RALLY

The outcome of this conversation has to result in the client liquidating some of his/her holdings and moving them towards other situations.

Broker: The gold stock I put you in at 30c has increased to 90c and I feel we can do better with a mid-cap and placing funds in an explorer that is about to drill a prospective target in a gold producing region. I am suggesting we do not sell all of them but just enough to get you two reasonable parcels.

Client: But the spot price is $356oz, and the stock in mid-2002 was the same price when gold was only $325oz. Please put it on at $1.15 and see how we go. Till then I am happy to hold it as they are earning good income, and should the POG fall a little I will be relatively safe.

Broker: I will call you when the stock is sold.

Tony Locantro
locantro@iinet.net.au

21 January 2003

Tony Locantro is a client advisor in Perth, Australia, and the author of "The Green Room", A Guide To Speculating on the Australian Stock Market. Tony was previously a major contributor to Australian Internet forums under the nick "Budfox" from 1998-2001. Stocks mentioned in this article are for illustration purposes only and do not represent investment advice. The author has both direct and indirect interests in stocks mentioned in the article and these may change without notice.