The front page of today's AFR was focussed on the property seminar scams, whilst the decline in inner city unit prices in Melbourne and Sydney gained significant attention in the Weekend Australian. There was also talk of moving out of the property into shares as if it would be an orderly process and investors were able to easily cash their chips in.

Unfortunately when everyone rushes into a crowded area they may undertake significant improvements whilst neglecting to provide comfortable exits. For many it would be too late as they are no doubt seeking further proof that the property market is decline and once they gather to courage to seek a valuation they will normally react with, "I am not selling it for that, I would rather wait until it gets to the price I want first then I will sell".

The ASX listed gold producers provided an average return of 10.56% over the two-week period, however this performance was somewhat exacerbated by St Barbara Mines (SBM) 61.5% movement of a very low base of 3.9c. The stock once through 5c was able to attract significant support from the trading fraternity and closed strongly at 6.3c (a 31.25% increase on the day. I have received countless emails from those holding SBM shares in relation to their gradual decline to below 4c from medium-term highs in the low-mid 20's. It should be noted that SBM in terms of popularity was in the top 5 of widely held stocks by retail investors. Croesus Mining (CRS) arrested a nasty share price slide by producing a quarterly report that provided not only strong production results but was complemented by a number of high-grade gold hits. The shares that were previously struggling in the mid 40's briefly touched 60c before closing at 58c on Friday. Both Lihir (LHG) and Croesus (CRS) are the most popular and widely discussed gold producers on the ASX, although Newcrest (NCM) and the recovery of Sons Of Gwalia (SGW) have attracted significant interest.

• Troy Resources (TRY) was the only gold producer that decreased over the two weeks, whilst Durban (DRD) was steady.
• The money flow returned to the more popular issues based on the gold price movement as opposed to specific company developments that were dominating previously.
• Those with higher liquidity managed to attract considerable daytrading activity and were able to build on their gains earlier in the week.
• My selection Herald Resources (HER) put on 8% over the review period (below sector average), whilst the previous top performer Dominion (DOM) added another 9.3%. Those with lower liquidity and identified as medium-longer term opportunities tend to get overlooked in the rush for any of the popular producers (along the lines of the mid-year rush in Mid 2002).

LIKELY DEVELOPMENTS MOVING FORWARD

• Further rationalisation in the mid-cap sector as the search for cheap resources gathers momentum. Many companies are running on low reserves, with exploration thus far still failing to add significantly to mine life. (In contrast to the nickel sector).
• Investors are now likely to start seeking opportunities in the more speculative issues/smaller producers as the upside in the majors becomes limited. Once the returns being attained infiltrate bars, barber shops, and during drunken taxi trips the fast buck artists will slowly crawl out from under their rocks.

AUSTRALIAN SILVER JUNIORS

Despite the move in the POS our silver juniors, Macmin (MMN), Malachite (MAR) failed to embrace the upswing with MMN moving from 8c to close on Friday at 10.5c, whilst MAR limped to 16.5c after trading around 14-14.5c. I feel that if we had crept towards $5.00 instead of going straight through the front door, the stocks could well have been trading a few cents higher as many sellers would not have believed the move was sustainable and offloaded into any buying support that suddenly appeared. The day of having silver companies presented in major financial publications is certainly nearing, however it is apparent that the break of $5.00 was insufficient to justify it.

EXPLORERS UPDATE

Judging by the earlier activity in the junior explorers one could be forgiven for thinking that we were in the early stages of somewhat of an "Exploration boom" where the price of PM's and commodities were of no great concern. During the dizzy heights of the dotcom bubble, how many people were actually researching how much revenue a company could earn from a banner click or the price of a establishing a website or a replacement keyboard or mouse?

The phycology is changing and for the better in this sector, and this point discussed in great depth in a number of Perth's finest watering holes on Friday night. Some other brokers were commenting on how they were getting calls from clients they had not heard from in 3 years wanting to buy 1c stocks they were tipped were going to 5c. These tips are also around for 20c stocks to hit 50c, the 50c brigade to fly straight through an oxford and so on.

I have noted a major increase in new arrivals to a number of financial discussion boards as some contributors are starting to use the word "will" instead of "might" to discuss a potential share price move. The discussion topics and levels of enthusiasm are not dissimilar to those we witnessed during early 2000 and in some cases the same stocks that were being pushed to 50c in 2000 are now threatening to move towards 5c. Despite the biotech sector still attracting the bulk of attention to excitement is starting to spill over to gold and to a lesser extent silver.

• Independence Gold (IGO) touched 43c on Friday before closing up 2.5c at 41.5c after the company released nickel results from the Long Victor Mine. Results included 2m @ 8.77% Ni, 4.1m @ 4.36% Ni and 3.9m @ 7.88% Ni. The Australian nickel sector has been re-rated following strong rises from Mincor, Jubilee and MPI Mines.
• Austminex (ATX) presented on Wednesday night to a number of Perth based investors/holders prior to releasing their quarterly report. The major focus was on the gold exploration and the emerging nickel potential. The stock closed at 8.8c on Friday after briefly touching 10c on 899k.
• Universal Resources (URL) announced that high-grade copper-gold resources at the Roseby project in QLD have been increased by 45%. (Inclusion of Lady Clayre deposit). The inventory stands at 11.6mt containing 123,600 t of copper and 94,500oz gold.
• The record date for the new Corona Gold issue out of Herald Resources (HER) is August 22, 2003. The company also provided further information on the Dairi zinc-lead (potential for silver credits) mine in Nth Sumatra. Gold production at Coolgardie was also set to improve after some mechanical difficulties.

THE STORY THUS FAR

I am currently concentrating on stock rotation for clients and balancing their portfolios to reflect the favourable conditions for exploration news to provide reasonable share price re-ratings. We have already benefited from the strong moves in the majors (The bulk of the easy upside has already been made) and the initial bout of rationalisation where Acacia, Normandy, New Hampton, Hill 50, Goldfields, Aurora, and Abelle were all the subject of corporate activity. Although we were not directly involved in the Minotaur (MNR) discovery in November 2001, owning companies within the same state proved to be worthwhile in terms of preparing for the next major hit and taking some short-term gains from those within a ten-hour drive from the site.

There is still value in the mid-caps and the majority of the juniors where many are still trading at or near cash/shell value. Whilst funds are not being thrown at will towards the speculative issues and research is still being undertaken one gets the feeling that it is only a matter of time before it is on for young and old. As I have stated in previous articles around 97% are going to wish the day never came where the bull market beer goggles were attached permanently.

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.

27 July 2003