Major news items of late have included the fall of Lion Selection Group (LSG) from $1.70 to $1.41 in response to the takeover of EAGM. The share price slide reflected the disappointment in not conducting an IPO, however the sale will add 26c to LSG's NTA when combined with the June 2003 figure of $1.18 has resulted in the stock now trading at a slight discount to NTA. Equigold (EQI) announced the closure of 206,864oz and the full repayment of secured debt, which will save $1.7m in interest payments. Equigold has been one of the strongest performing ASX producers in 2003 and the news was well received by the market. The slide in the $A has also provided some relief for our producers as the price has recovered from the $512 level to $522.84.

• Dominion (DOM) was the top performer over the review period. My ongoing selection as the next outperformer Herald Resources (HER) came in second with a 7.5% increase.
• The three popular ASX producers Croesus (CRS), Lihir (LHG) and Oxiana (OXR) put on better performances although Croesus was slightly below the sector average.
• Sons Of Gwalia (SGW) has continued its stunning recovery after being labelled at one stage as "Daughters of Gwalia" as the stock toiled with the abyss. (The higher AUD has assisted both SGW and Newcrest (NCM).
• The overseas-based stocks are performing strongly although Durban (DRD) remains in an unusually tight trading range on low liquidity.

• I would expect another bout of rationalisation in the gold sector, based on a lack of new discoveries. (This aspect has been reflected in a significant turnaround in exploration expenditure). Those companies with non-core producing assets may also be tempted to move into what is developing into a sellers market. Nickel is also throwing up some interesting possibilities on the corporate front.
• The $A to resume its uptrend after the current corrective phase, although the levels reached in 1996 (80c) may be beyond it at this stage. I view the $A has being in no mans land in relation to the desired level of 50c by many and the potential threat of a move towards 80c. It was interesting to note Gerry Harvey's view of our currency as being "A half price dollar" during its dark days in the vicinity of 50c.
• I feel the move towards some of the less liquid and popular issues will continue as investors chase company developments and potential corporate activity. The share price declines and shift in sentiment in the more popular issues will take some time to resolve itself. Whilst they are always "First off at the traffic lights" stale bulls knock them around at the first available opportunity.
• During the last two weeks I have noted a significant increase in institutional buying across the sector and I would expect this trend to continue as some major portfolios are slowly developed. The buying support is also filtering down to the mid-caps and selective junior plays.

Those still loyal to the silver cause are no doubt excited at the recent price performance that has again evoked thoughts of the magical $5.00 level. Whilst it got a case of the wobbles later in the week, the frenzied activity was always going to lead to a gentle correction at some stage. (It was becoming overdue anyway). The increase has done little for our silver juniors Macmin (MMN) and Malachite (MAR), whilst the second and third liners have shown little movement also.

After numerous false alarms many would expect the recent rally to fade away, and this factor could well set the scene for the metal to have a serious crack at a major breakout in the near-term. Some have told clients to sell into the strength, whilst others believe the movement is based on the recent resurgence of equities and base metals.

Silver in my opinion represents an outstanding investment medium based on the fact it can wear the PM or industrial commodity hat to suit, and has spent the best part of the last 23 years in the sin bin. Whilst coverage on the PM related forums has skyrocketed, there has been very little appreciation of the movement thus far and the compelling fundamentals that exist for silver in the mainstream press which is another positive to add to the growing list. I must admit for a fleeting period over the last week the price of gold hardly mattered.

With a number of major drilling programs recently completed, I am anxiously waiting on the result we so desperately require to give this sector the kick it so richly deserves. Whilst the underlying support is pleasing there have been no major reasons for the buyers to start buying at market. I have designed the portfolio to reflect those companies that offer share price upside through having modest market capitalisations relative to their potential. These stocks are all yet to even enter the "Buy the rumour" stage, which provides even greater potential once the market wakes up to these opportunities.

Austminex (ATX) has managed to hold the 7.5c level on no news. Interesting to note that the majority of the buying has been "Off Screen" with very few bids despite a wide market depth.

The Dairi pre-feasibility study results were released for Herald (HER) during the week along with a Coolgardie Gold Project update. The zinc-lead-silver project could return a pre-tax cashflow to Herald of approx $140m US over a 6.4 year mine life. (The other 9mt of ore were not included in the study). The Coolgardie Gold Project has suffered some mechanical problems and as a result qtr production has come in lower, although the mine performed above budget for June.

Malachite (MAR) announced the first project to be generated from their BHP Billiton alliance. The Copperfield Project located 150kms west of Townsville is prospective for copper-gold-silver with a number of interesting sample results. Results from the recent silver exploration at Conrad are expected shortly.

The other stocks continue to trade on low liquidity in fairly tight ranges, although there has been an increase in buying for Apex Minerals (AXM) around 14c.

• The stocks generally have very low levels of liquidity and the share prices will fluctuate far greater than the listed producers. One seller or buyer has the capacity to cause significant percentage movements in both
• Clients have been involved in stock rotation within the portfolio in order to balance holdings.

Personal/Related Party Trade Disclosure

During the week a small parcel of Malachite 2007 options (MARO) were sold in my wife's account to cover a small purchase of Herald (HER) shares for my one-week-old son. (PA account). I ended up getting my daughter some HER when she was born and it is now a family tradition.

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. The company websites have been provided where applicable for further research. 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.

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" and presents on resource stock investment. He is a contributor to a number of precious metals related forums.

Contact Details:
locantro@iinet.net.au for further information and/or contact details.

13 July 2003