AUSTRALIAN MINING REVIEW
Tony Locantro
After it appeared the Australian mining sector would remain subdued despite the activity in Canada and the US, over the last three weeks in particular there have been a number of encouraging signs emerging.
The interview with Pierre Lassonde and his $450oz call for gold actually found its way into the Australian mainstream press and no doubt served to bolster confidence in gold that has steadily been building.
THE REAL ESTATE BUBBLE
Amazing how the final episode of "The Block" where four couples renovated apartments in Bondi flowed into the main story on "60 Minutes" where the housing bubble came under the microscope. I remember in 1993 picking up a one bedroom flat 450 metres from Bondi Beach for $115,000 and as a result of a relationship breakdown emerging with $128,000 shortly thereafter. The final apartment featured on The Block went for a staggering $751,000 and has served to highlight the dangerous situation that threatens to engulf middle class Australians. The 60 Minutes feature was a more sombre affair, however the downside figure of 4-5% mentioned by mortgage magnate John Symond appeared conservative after he introduced a number of issues likely to prick the bubble.
The helicopter flight over inner city Melbourne featuring Peter Costello (Treasurer and PM hopeful) emphasised the construction frenzy and as a warning he openly stated that prices were actually coming off as demand was failing to keep up with supply.
From watching both programs tonight I still believe many will be oblivious to the fact that prices could indeed correct 25-30% and still struggle to attract buyers as many head to the sidelines waiting for even cheaper prices before stepping in.
After months of pleading with my sister to sell her unit close to the London CBD it was with great relief that she informed me that an offer had been made for it only days ago. Sure it was below what the agents quoted her, but in the long run the decision may indeed have saved her from financial ruin.
THE MINING SHOW
Can anyone begin to imagine what it would be like if PM's and commodities attracted similar attention to real estate?
Why not send four couples into the outback of WA with a tent, the services of a celebrity chef, 4wd, and metal detectors and have one drilling rig on standby to drill each couple a hole once they had selected the spot. Maybe each couple could be rewarded for answering sporting questions correctly with colourful maps prepared by geologists providing some worthwhile targets. The highest assay result wins, however why not have a major gold company sponsor the program and agree to purchase the prospect off the winner. Might be worth a 9.30pm slot once a week for any other forms of drilling (apart from the RAB and RC) that could take place.
Prior to this we can look forward to having syndicates advertised in newspapers for exploration leases, computer programs that claim to find economic resources, deep sea drilling and once things start to get crazy Mums and Dads can peg their own tenements on Mars. Anyway back to reality.
ASX PRODUCER SCORECARD
The ASX listed gold producers have performed strongly over the three-week period as funds chased liquidity, whilst positive news items largely drove other companies share prices. Again St Barbara (SBM) was the top performer off a low base, whilst Sino Gold (SGX) with gold interests in China has performed strongly from its $1.00 issue price. A number of companies that were holding in tight trading ranges have finally broken out and these include Troy Resources (TRY), Triako (TKR), Equigold (EQI), GRD (GRD), Dalrymple (DRE), whilst Durban (DRD) has finally arrested a nasty downtrend on our market.
AUSTRALIAN SPECULATIVE MANIA
The speculative mania that returned to the biotech sector and a number of battered Internet and IT stocks has finally infiltrated the emerging producers and junior explorers. I have noticed that market capitalisations are finally starting to creep towards the $10m-$15m level which could ultimately be the ground floor entry level. A number of 2c-3c stocks are now working there way towards 6c, whilst those previously holding their own around 5c-6c seem to be attracting the daytraders as they build momentum towards a break of 10c and 0.5c price increments. The mania was confirmed when MUL traded just under 500m shares during once session and traded as high as 9c after closing at 4.1c the previous day. It should be remembered that this company was a former Dotcom darling that was literally friendless sub 1c only months ago. This has resulted in re-ratings for the majority of the sub 1c brigade as investors push them higher in the belief they to will be able to MUL up.
The ASX has again started to issue speeding tickets, however not even the stock standard response of "There are no reasons that we are aware of for the price increase", has dampened the traders appetite for a potential runner.
There are however still large numbers of "Stale Bulls" who are selling into the first sign of strength and as a result a number of stocks are coming in for a fair degree of punishment even after a positive announcement. This is clearly evident in the final minute leading into the resumption of trading as the over enthusiastic buyers are still managing to pick the intra-day top as the sellers charge in shortly thereafter to destroy what was only seconds before a very attractive market depth.
In contrast to early 2000 we are moving off some very low bases, however in many circumstances similar performances are impossible based on the fact that the capital structures of these companies has blown out significantly.
EXPLORERS UPDATE
With the continuation of strong prices in the PM's, further delays in nickel production coming on stream combined with positive signs for both copper and zinc the environment for exploration companies has not been this favourable since 1996. The nickel juniors in particular continue to go from strength to strength and with drilling taking place on a number of fronts we may yet have witnessed the real frenzy that has the potential to take the entire sector to the next level.
- Independence Gold (IGO) has performed strongly reaching an all time high of 59c before closing on Friday at 57c. The share price strength has been a result of very encouraging nickel results, an upbeat presentation at the Diggers and Dealers and talk of further tightness in the nickel market over the next 12-24 months.
- Ramelius (RMS) announced further results from Black Cat along with a small resource of 11,000oz with drilling due to take place on a number of their other projects.
The performance of the portfolio has been very encouraging considering the level of exploration activity is expected to increase significantly for the remainder of CY 2003.
Bear Market: A relaxing period where investors and regulators work out how they were fleeced during the previous bull market.
Human nature is such a wonderful thing and despite all the research associated with previous bubbles as far back as the tulips the majority will continue to be wrong in the end. Last week as a symbolic gesture I threw a copy of my book in the bin as the bull market beer goggles have taken over. Instead of moving the profits into real estate on this occasion I am looking towards some slow growers in the sector that will no doubt lag behind the promoters but have the capacity to stick around and thrive once the proverbial eventually embarks on its journey towards the fan.
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.
18 August 2003
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