Spec Bubble Or Isolated Madness?
Tony Locantro
It would appear that the recent childcare and syringe booms have provided a decent springboard into some further market madness in a handful of biotech stocks and more recently the listing of "The Daily Planet" (The worlds first listed brothel). For a 50c issue that was forced to significantly reduce it's minimum sought, the rise to an intra-day high of $2.05 on only the second day of trading may yet signify somewhat of a turning point for the speculative market. Whilst DPL is essentially a real estate play (the brothel leases the building), it is amazing what can be achieved with some marketing, and having Heidi Fleiss profess "Sex is on everyone's minds 97% of the time, so it's a good investment; it's a great investment" cannot hurt your prospects either. I must admit to phoning the establishment and ordering multiple copies of the prospectus for myself and clients as collectors items, however with the benefit of hindsight we would have got far more of a rise if we had filled out the application form and attached a cheque.
This new float has served to again wet investor's appetites towards IPO's who in the fear of missing out would prefer to write a cheque than wait for the stock to potentially halve on open. The track record of new issues on the Australian market post Nasdaq bubble has been pathetic at best, however it only takes a novelty issue such as DPL to inject some courage into the retail investor.
What does this mean for precious metals stocks?
With increased confidence in the speculative market, we are starting to witness mining stocks react favourably to exploration results and even quarterly reports. Companies share prices are also starting to exhibit some solid foundations in the buying depths and those that have been re-rated are threatening to maintain a higher trading range. Previously stocks would be lucky to hold a new level for 20 minutes as the fickle trading volume would move elsewhere or stale holders were given a brief window of opportunity to exit their positions. Whilst gold and silver have suffered dramatic falls in popularity the nature of the "punt" would provide the main hook for new IPO's and although many will continue to struggle those possessing an "edge" will find the capital raising journey a less daunting experience than those that dared to attempt the near impossible.
Exploration Results Are Pointing Towards A Major Discovery
From recent results released from a number of junior exploration companies it would appear that a major discovery is not all that far away. Whether it is gold, silver, copper or even the much-unloved zinc, any find of significance could well be the catalyst for an exploration boom regardless of the price of the underlying commodity. We had Minotaur go berserk in November 2001, over copper intersections yet the market at that stage was hardly rating gold stocks let alone copper explorers.
The results thus far should be treated basically as clues, however as per the usual the majority tend to buy after the results, rather than do some groundwork and invest prior to the excitement stage.
Some Recent Exploration Highlights…
- Austminex NL (ATX) announced highly encouraging results from drilling at the Mount Gold Project near Widgeemooltha in WA. Intercepts included 6m @ 8.32 g/t, 2m @ 33.92 g/t, 2m @ 14.23 g/t with previous results released from Grosmont including 12m @ 17.55 g/t, 1m @ 158 g/t, and 3m @26.94 g/t.
- Titan Resources (TIR) reported 7m @ 7.95% Ni, and 3.5m @ 12.13% from their Widgeemooltha North Nickel Project in WA.
- Mount Conqueror (MCO) and Central West Gold (CWG) announced a 3m intersection @ 103 g/t gold, and 2m @ 22 g/t from drilling at Boorook near Tenterfield in NSW. The third hole failed to intersect any mineralisation.
- Alkane (ALK) released results from the Tomingley Gold Project including 81m @ 4.26 g/t and 54m @ 3.80 g/t. (Wyoming NSW).
- Tectonic Resources (TTR) at the Kundip Mining Centre announced 5m @ 9.47 g/t gold, and 2.44% copper.
Whilst the results above have triggered renewed buying interest we are still a long way from a regional boom such as the Gawler Craton in 1996.
Near-Ology not just yet…..
During previous mining booms investors would often scurry for maps as to who possessed adjoining tenements or those remotely in the region. Even during the Minotaur run I remember phoning a company and enquiring as to how far they were away from the prospect. Even a couple of hours drive couldn't stop the stock running from 8c to in excess of 40c, whilst a junior within 40 kms struggled from 9c to 19.5c before running out of legs. With the batch of results released above those nearby have hardly battered an eyelid, although the form coming out of Widgeemooltha WA is starting to stand out like the proverbial. Who knows these could be isolated incidents, however with the amount of drilling occurring, the delays in the labs and the extreme difficulty in getting a rig and team together (drillers may be brought in from overseas) mining maps regardless of the scale could yet become a worthwhile tool.
Major Battles In Some Stocks
Across a number of stocks I am noticing that buyers are now prepared to take on with greater gusto the "stale bulls" or those still running with the philosophy of "A profit is a profit". Some of the selling has been bordering on ridiculous and this is still indicating that many simply cannot come to terms with the fact that some speculative shares may actually increase. Whilst this is going on stocks are suffering large percentage rises and falls on very light volume, however the buying support building just below the market to me indicates that buyers are now finally getting on top as the final wave of selling throws in the towel. Conditions were similar in October 1999, however I am sure many would not have expected what was to follow shortly thereafter.
Are We Ready For Another Bubble/Boom?
The answer to this is "Probably not just yet", however recent events have certainly set the wheels in motion on a number of fronts. Despite the debacle over Pan Pharmaceuticals, the media coverage of Rene Rivkin's insider trading case and the potential fallout from the AMP's restructure, the underlying support for a number of stocks in the junior end looks the most promising it has for some time. It takes time for a number of stocks to move and excitement to spread, however on the ASX this would be our best opportunity since Nov 2001 to see some outlandish trading on our market that spreads beyond selective issues. The major threat on this occasion would appear to be the Dow Jones, and barring a total collapse in the near-term I would expect conditions to gradually improve with traders adopting a far more aggressive stance, whilst IPO's are again sought after. Looking at the economic climate, the selling pressure on the USD and a number of other factors the duration is seriously under threat.
Despite a very strong performance from silver in particular, the trading in precious metals stocks is starting to indicate that investors and traders are seeking excitement on the exploration front as opposed to an increase in the POG or POS overnight in New York. Whilst it is only starting to make the papers, the trading activity in a handful of stocks is certainly exhibiting signs of the good old days where triple digit gains were normal events. Whilst we tend to look towards the upside the fact remains many are getting terribly burnt in the current market and this is only going to get worse. As I have stated in previous articles the vast majority are going to wish the next boom never happened.
Tony Locantro
locantro@iinet.net.au
6 May 2003
Email this Article to a Friend 
Printer Friendly Version