Australian Precious Metals Review

August 27, 2002

The lack of recent volatility in the POG, and a relatively calm stock market has resulted in lacklustre conditions for gold equities. The amount of associated press on gold has slowed to a trickle, along with the reliance on following the spot price religiously.

SENTIMENT NEUTRAL

The sentiment for gold equities has waned considerably, after brief stints of excitement then fear that the "bear" market was set to resume. The current sentiment amongst fellow advisors and clients would at best be described as "neutral", which essentially has been reflected in decreasing volumes and a general lack of discussion on the near-term direction of gold. If anything these conditions are ideal to form the basis of a considerable rally later in CY2002 as the mainstream press's focus turns to the so-called "October effect".

CORPORATE ACTIVITY CONTINUES

Whilst the Canterbury Bulldogs and the salary cap issue have dominated the press recently, a proposed merger between Aurora Gold (AUG) and Abelle (ABX) has received surprisingly little press attention. The new entity will have a market capitalisation of around $100m, and one of the key issues is the acceptance of ABX (Australian operation) of AUG's project in PNG. With a shortage of viable assets for sale in Australia, the trend now is clearly at attaining cheap ounces despite the inherent political risks. As exploration efforts of Australian listed juniors increases in Indonesia, Thailand, The Philippines, Laos, Sweden, The DRC, and PNG I would expect further mergers and acquisitions as juniors aim to move onto the larger investors radar screens through significant increases in market capitalisations. The investment opportunities in Australia have become somewhat limited this year, and until a new batch of hopefuls list with an increasing POG the money flow will be concentrated into a handful of issues.

A DOSE OF EXPLORATION EXCITEMENT RETURNS

The market is clearly anxious for news/results in any sector, and on Monday a small junior explorer Central Kalgoorlie (CKG) reported bonanza gold hits, and initially saw it's share price double from 2.5c to 5c before settling late to close at 4.4c on 37.29m shares traded (around 20% of the company's issued capital). More recently we have seen traders focus on positive announcements from the Dotcom brigade and selected biotech's however having a 4m hit at 134 g/t, and 2m at 255 g/t was sufficient to see heavy volume return to the junior explorers. The heading "Major Gold Discovery" was also of some assistance, and during a rally in the POG would expect numerous announcements to be worded in similar fashion.

EXPLORATION EFFORTS TO HEAT UP SHORTLY

After speaking with a number of Geologists and Directors it is apparent that over the coming two months there could well be a flood of exploration results hitting the market. Exploration hotspots are expected to include, The Gawler Craton (SA), Mt Isa (QLD), The New England Fold Belt (NSW), Lachlan Fold Belt (NSW), and Kalgoorlie in WA. The Musgrave region, which sprung to life upon WMC's nickel results, has been somewhat quiet of late, however once clearances are attained, I would expect some large scale drilling campaigns predominately in search of new mineral provinces in remote areas.

I also noted one Director referring to the delays associated in gaining a drilling rig, and how their exploration program in QLD would have to be put back one month until a rig became available. As the POG and POS increase I would expect this situation to be exacerbated, as companies desperately attempt to cash in on the next run.

DISMAL PERFORMANCE OF NEW FLOATS

The No Liability section in the Australian Financial Review focused on the failure of new junior resource floats, with only a handful delivering a return out of 25 new entrants. It must be noted that some companies issued free shares to holders, and it was the public that subscribed at the full retail price that have suffered the brunt of the losses. It is clear that the quality issues will continue to prosper, however we are far from seeing new floats listed at 200-500% premiums day one.

GROUNDSWELL BUILDING OR ANOTHER FALSE ALARM?

Despite generally weak conditions at present, I get the feeling that we are not far off further interest returning the precious metals sector. There appears to be an abundance of trading interest being generated, and provided we don't see a vicious meltdown in the US in the near-term we may actually have a decent Christmas rally in Australia that has been elusive post Nasdaq crash.

Despite having ideal buying conditions, with some excitement returning the "window of opportunity" could be effectively slammed shut at the first hint of a break well below $300oz and/or further declines in the broader market.

In every cubic mile of sea water there is 25 tons of gold