Once you look past Newcrest, there is some real pain in the juniors with a number of projects in strife or temporarily shelved due mainly to the explosion in the costs of contract mining. The 'Coyote Project" for Tanami (TAM) has been the most notable of late as the company works towards delineating further high-grade resource before proceeding with their moves towards production. The share prices of Croesus (CRS) and Dioro (DIO) are near multi-year lows and both in fact were far more buoyant with the USD gold price around $329.

ECONOMIC OBSERVATIONS

• Housing prices in Sydney and Melbourne have fallen sharply in some areas. Recent current affairs programs have highlighted the bargains where some $700,000 homes are now being offered in the low-mid $500,000's with the attitude that the time is right to purchase. The falls have been mirrored in auction clearing rates also.
• The debt bubble is starting to gain some press and in particular the interest free purchase periods where there are some suggestions that the game is effectively up. These periods are now getting out to 4 years, however the interest rates (currently up to 27%) are being maintained.
• The prices of DVD recorders have halved, whilst there appears to be major overhangs with DVD's and as a result prices are in some cases are now sub $10.
• The DVD and video hire business has become ultra competitive with the major chains now matching the smaller operators as a price war gathers momentum. In some cases new releases have fallen from $7 down to $2.50.
• Australian wine sector now under severe pressure with a major glut. This winter in WA looks like a real buyers market in terms of reds. In times of economic hardship Australian's turn towards gambling and alcohol and will be well accommodated.
• Dancing With the Stars is now all the rage as the reality TV bubble has well and truly burst. I am all ready under pressure to attend ballroom dancing classes, and expectations from Australian women have no increased in terms of the ideal male.
• There has been a major bull market by stealth occurring in the art market, with super funds now swamping the sector. Already there are cracks appearing with some previously popular artists coming in for some real pressure in terms of pricing. As with any bubble this one cannot possibly go on at is current pace and a as with the real estate sector once buyers step back there is often an avalanche of sellers.
• One gets the impression we are in a period of complacency and maintaining a 'She'll be right mate" attitude amongst a backdrop of rising inflation, rising interest rates and major falls in real estate prices. Whilst we are a major supplier of commodities to Asia the fact remains that we will struggle in a competitive environment based on the lack of skilled and adequately trained staff. I have already approached one Managing Director of a mining company and enquired if he was available to take the reins of another company if possible.
• The employment section of the West Australian is still overflowing with mining related opportunities every Saturday and this trend would be expected to continue until into the foreseeable future. In some cases the employment section can offer far greater insights into company developments than you may receive from ASX announcements.

SPECULATIVE MARKET BACKDROP

In 2005 the Australian Uranium sector has been all the rage, and although it has just endured a reasonably savage correction the lack of alternatives has ensured a continual flow of speculative funds into the juniors. There has been a significant increase in the number of companies participating in the sector and as of April 26,2005 the following were involved in uranium exploration and/or development,

**Mkt Capitalisations calculated on tradable securities only. They do not take into consideration options (listed and unlisted) along with shares currently in escrow. Some of the companies have made major announcements today and the share price was taken at the time the table was put together, whilst closing prices were used for the others**

Since the resource sector has undergone its reinvigoration the two sectors that have enjoyed a broader based rally have been both nickel and uranium. The price spikes in copper have done little to fuel the sector and corporate activity (URL, CUO and Exstrata) has restricted the upside potential even further as the fight for the prized Roseby asset seems to be gathering momentum. Australian's are hardly the types to embrace zinc yet with open arms, and one would feel it is still a little early for rare earths just yet and 2008 could be the time for the more exotic elements, as some believe it will coincide with the peaking of Arab oil production.

There remains considerable interest and volumes in the speculative sector and with a more neutral market (still leaning towards uranium), one would feel that if gold is going to make a run for it now is the right time to capture some investor interest.

PDAC CONFERENCE MARCH 2005

As a resource bull it has always been my intention to attend a mining conference overseas when I felt the sector had run its course and I wanted to go only for the humour value and the fact I knew I could sit in on most presentations and doodle away. The other benefits would have been the exponential increase in "booth bunnies", freebies and talk of the gold price heading towards $10,000oz. I decided to make an exception on this occasion and after a short trip to London we made our way to Toronto and apart from the sub zero temperatures noted the following,

• The demographics of mining conferences have not changed yet. The average age is still up around 50, however I have noted that the numbers of women involved and asking questions is increasing at a steady clip. I would expect to be able to meet the same crowd next year without too much trouble.
• When the conference is overrun by 28-35 yr olds and you are able to develop neck spasms from observing the crowd one would hope your are dominating the sell side or about to accommodate the rush of buyers. This would be a similar scenario to the trends we have witnessed real estate and renovation, whereby it became the domain of the young and beautiful.
• Uranium remains the most hyped commodity, with very little excitement surrounding gold and silver. The silver seminar from CPM I felt was well put together and presented a realistic case, however there was little evidence of what may occur should gold really decide to go during the next up leg. (I.e. devoid of any potential hype)
• The Canadian companies are still the champions of the "Booth Bunny", however in most cases the promotional aspect never went much further than mints, chocolates and security guards standing around a diamond or some gold coins.
• Countries such as Ireland were quite well promoted in terms of the mining industry, whilst the Australian stand I felt was well set up and attended. Some of the more interesting and exotic presenters included Iran and Madagascar.
• The bulk of the action was at the Royal York, however I admit there were far too many parties to attend and the hotel ended up at times becoming a drunken maze. The South American parties were a standout along with the Scotch testing night.
• Canadians and the Europeans were astounded with how cheap some of our mining stocks are, however I got the impression many were reluctant to move in at this early stage.
• The lasting impression I got from institutions and resource funds was that they would much prefer to purchase with momentum and are happy to forgo 30-50% in upside potential in order to capture a rising stock. Becoming a bottom feeder can be a lonely experience and whilst we would like to see larger investors supporting our view when your pretty close to being washed there are not many who are prepared to go against the trend or purchase a stock that looks poor technically.

MY COURSE OF ACTION AS A GOLD BULL

For those doubting their stance as a gold bull or in need of gentle reminder I would suggest taking a vitamin B supplement (the fizzy variety) on a daily basis and apart from the odd Friday night slip up after a heavy night there should be plenty of gold to go around. I see the current malaise in the Australian Gold Sector as providing a rare opportunity to accumulate major holdings in those companies I feel will lead the sector out of one of its darkest periods.

Over the course of this year I have purchased for clients and myself an 18% stake in the emerging gold company Integra Mining (IGR) (www.integramining.com.au) that closed today at 8c. Our purchase price has varied between 6.2c and 8.6c, however I am not terribly concerned with averages sub 10c and am happy to continue to build on our stake where possible. Based on the following I believe this one could be the rising star in a sector that is in terrible need of a shining light,

• Resource base currently around 730,000 ounces with an EV of around $12 per resource ounce in comparison with a sector average of $40. (Resource ounces/market capitalisation= EV)
• Major projects 130km East of Kalgoorlie in a highly prospective and under explored region of the Eastern Goldfields
• The company is aggressively exploring at Aldiss and considers some areas have the potential to deliver a major gold discovery. (Results from early stages expected shortly)
• The projects offer the potential for higher-grade hits combined with visible quartz veins towards the South
• The company possesses an Olympic Dam target at Borthanna in South Australia (Copper-Gold-Uranium) where there has been no value assigned to the project.
• The Managing Director resume is impressive in terms of his work at Thunderbox (2m ounces) and with Sino Gold in China. Whilst it is still early days I believe that he has the expertise and the ambition to see this company develop into a Top 10 Australian Producer over the medium-term
• The company is lacking a profile amongst local gold investors, however I find that the best advertisement is an ASX announcement as opposed to spending large amounts on glossy advertising. The other critical aspect missing is sentiment, however one only has to look back towards the great gold runs of 1978-1980 and even 1985-1987 to realise that once the cycle turns from "greed" to the "fear of missing out" overvaluation becomes the norm. It should be remembered that Bre-X was in 1996/1997 not 1896/1897. Fear is temporary, greed is perpetual
• Apparently this one gave a cracker of a "Sell" signal from a charting package/system recently and at times I was tempted to have the stock temporarily halted so I could have a breather and some time to organise my buying as I was wearing it from every direction. As I have stated quite openly in my articles my care factor in relation to technical analysis is zero and I may have been stopped out of a large number of winners I have achieved thus far if I was playing them on technicals. I am disciplined in some aspects, however I treat the speculative market as psychological warfare as opposed to being an exact science. I respect the roles both chartists and short-term traders play as they rely on what they believe in, whilst I would prefer to take the slow road that consists of countless hours of fundamental research and flying around the world to attend mining conferences.

** Patersons Securities were lead manager to a placement in Integra Mining at 6.5c per share that raised $1.87m. They were paid a fee for this service. I have direct and indirect holdings in Integra Mining and have purchased stock between 6.4c and 7.9c per share.

GOLD SECTOR OUTLOOK

From speaking to Directors and browsing ASX reports there is considerable drilling activity underway from those companies fortunate enough to book rigs well in advance. Whilst our junior producers are struggling with rising costs and the failure to replenish their resource base, one would feel that with the current exploration focus the Australian Gold Sector is long overdue for a discovery of substance that will bring speculators back to the sector. Something in the order of 500koz to 2moz would be ideal as a number of the more recent rallies spurred on by the occasional high-grade hit have been unsustainable.

As with both the nickel and uranium sectors it is apparent that being an early mover is often associated with having the highest multiples when it comes to share price appreciation. The number of pure gold floats on the Australian market has virtually reached a standstill and the vast majority on the Internet forums are squabbling over stocks that have already provided the bulk of the upside and are largely ignoring the gold sector.

The tax loss selling last year (Late May to June 2004) was the most savage I have ever seen in my seven years of advising clients. Based on the recent technical weakness and the fact a number of stocks are virtually nearing "washed out" status I would expect that tax season 2005 could be a much more pleasant affair without the stupidity that was created last year. Unfortunately for many gold/resource bulls they are fully invested and are not in positions of strength to carry out some major stock rotation. The oil and energy sector in Australia has failed to go on with the job due mainly to a lack of exciting discoveries, however I would expect some gradual shifting of funds from oil to gold over the medium-term.

With the AUD gold price trapped in a tight range and labour costs spiralling out of control a number of projects have been shelved in the current environment and it may be worth noting those that are likely to brought back into play once conditions are more favourable. These situations at worst will provide a decent call option on the AUD gold price, however in terms of benefiting most from an upturn in gold sentiment the best upside could well be won by investing in companies that offer a growth profile and possess a management team capable of seeing them progress through the ranks of Australian Gold Companies.

100When the various mining conferences become an alternative to singles bars the party may well be nearing its climax. I am hoping to meet the new breed of gold investors in 2008/2009 and until then it will be a case of fighting other market participants and maintaining ones stance on the potential that the gold sector continues to offer.

In the event of a real "gold bull" emerging the upside figures quoted in the uranium table above will be made to look ordinary once the dust settles. Gold may have temporarily lost its lustre amongst speculators, however it is far from losing its ability to transform the most conservative investor into a rampant bull seduced by greed once the game begins.

26 April 2005

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 and 2004 (Independence Group) and Arafura's Nolans Bore Project in April 2004). 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. It should also be noted that some of the stocks may have very low levels of liquidity and may result in significant percentage rises and falls. Please conduct further research and consult your financial advisor before making an investment/trading decision.

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" (available free to prospective clients via email request) and presents on resource stock investment. He has been a contributor to a number of precious metals and market related forums.

If you would like further information or are interested in becoming a client I can be contacted at locantro@iinet.net.au