Rafa said:i had one decisions to make...
CBH or JMS...
Picked CBH... and JML is up 3 cents since then...! CBH down 1cent!
oh well...
CanOz said:CBH is on the move but its going to be an effort to plough through the sellers today. If it breaks .42 it may breakout. Fingers crossed.
thxTreasure hunt FEATURE
Although resource stocks are all the rage right now, investors are wary about exploration minnows. Which is exactly what makes them such a good catch, Tim Treadgold explains.
TD The resource boom is moving on. While over the past few years just about every mining stock has risen in harmony with commodity prices, most of the easy gains are gone. The low-hanging fruit has been picked.
Today, you can sum up in a single word the future driver for fast profits from resource stocks: discovery.
A whiff of what investors want came when CuDeco (CDU) startled the market recently with its Rocklands copper discovery in north-west Queensland. Despite being forced to backtrack with some of its claims, the fact remains that Rocklands is a significant discovery and CuDeco, which traded as Australian Mining Investments until July 20, has risen 10-fold from about 30 ¢ at the end of May to about $3. Such a gain was referred to as a "10-bagger" by the dinkum speculators of bygone booms, when the twin principles of exploration and discovery were well understood.
"People don't understand the exploration process, which is all about taking grassroots exploration through mineral exploration, through resource definition, through feasibility studies and on to production," Lewis Johnson, a director of Bell Asset Management and private client adviser with the stockbroking firm Bell Potter, says.
He adds that not even the experts you may pay to help invest your money have a firm grasp on the exploration process "because many of them have never even seen a mine".
Johnson's sobering assessment of why exploration is a dirty word in the investment community can be seen two ways. Either it's a warning to keep clear, or it's a marvellous opportunity to get ahead of the game - a classic case of the one-eyed man ruling in the kingdom of the blind.
It could well be the latter. With just about everybody investing by the index ¿ in other words, in large, established resource stocks ¿ many of the small explorers have been neglected.
"The exploration sector is overdue for a revival," Rob Brierley, head of institutional broking at Hartleys, a Perth-based broking house, says. "There are issues holding back field work, such as continued problems with land access, and simply getting enough opportunity because so much prospective land is locked inside the major mining houses.
"Having said that, there are excellent examples of discovery driving some of the smaller mining stocks. Independence Group (IGO) with its Tropicana [gold] strike east of Kalgoorlie is one, and perhaps you really ought to be looking at Jubilee Mines (JBM) as a discovery story as much as a nickel producer, because it continues to report excellent new finds."
The wood from the trees
Ian Christie, an analyst with Perth-based Argonaut Securities, says the resources boom has made it hard for a junior explorer to "stand out from the crowd". He says that will change, especially among the smaller Australian-listed oil and gas stocks, which have made the US their home.
"At the end of 2003, there were six [Australian] companies with a focus on the US," he says. "When I last counted there were more than 20 purely focused on the US, and that's omitting companies with an interest here and over there."
But only a handful of analysts follow the exploration sector and there's a serious lack of coverage by big brokers. As Bruce Maluish, managing director of the emerging zircon producer Matilda Minerals (MAL) says, intense activity in the iron ore and uranium sectors has drowned out good news from elsewhere among the explorers.
"It is a bit frustrating, but the view seems to be that iron ore and uranium are the only games in town," Maluish says. "The problem with that is that most of them are really picking over discoveries made as far back as the 1960s, so we're not going to see much original happen with them."
David Harley, chief executive of the titanium minerals explorer, Gunson Resources (GUN), and a former president of the Association of Mining and Exploration Companies, agrees with Maluish. "There is a fundamental problem that investors have drifted away from the sector," Harley says.
"Not enough people understand the process we go through, the risks involved and the potential rewards, which can be substantial."
Getting in early
Johnson says anyone contemplating adding exploration stocks to their portfolio should diversify, aiming for a spread of risk across commodities and locations. Of course, as these stocks are speculative, you should also allocate only a small percentage of your total assets to them.
To be successful, an investor in exploration stocks must first do homework, understand the business as well as its terminology and the role of multiple arms of science, and be prepared to sift the difficult and dodgy from real opportunities to get in on the ground floor of what could be a change in sentiment towards exploration over the next 12 months.
To help with this filtering process, AFR Smart Investor has picked its own top five exploration stocks and top five small resource stocks that are already in production.
You never know, one of these could be the next CuDeco, or Salinas (SAE; up from a low of 21 ¢ to a 12-month high of 89 ¢), Rox (RXL; 9 ¢ to 65 ¢), Independence ($1.38 to $3.61), or Breakaway (BRW; 14 ¢ to 48 ¢).
BEST EXPLORERS
Independence Group
Combining the best of both worlds, Independence (IGO) is using strong cash flow from a nickel project to fund exploration. Its top target is a gold play called Tropicana located 250 kilometres east of Kalgoorlie, in a poorly explored region with potential.
Independence has another factor that makes it attractive: quality management. The team that floated the company in early 2002 is led by former WMC staff who understand the disciplines involved.
Cash, thanks to the price of nickel, is flowing into Independence at a rate of about $30 million a year, largely from the Long/Victor nickel mine that was acquired in a tender process six months after Independence floated.
Exploration around the old mine has expanded nickel reserves, ensuring that the company can continue funding projects that are aimed at converting Independence from a one-mine company into a business with multiple assets.
Breakaway Resources
Largely ignored by investors for years, Breakaway (BRW) burst onto the scene earlier this year when it was chosen as the vehicle for a management buy-out of the exploration division of a big producer. The result is the creation of a business with some of the best prospects for discovery in Australia.
The key to Breakaway is a combination of management and "drill-ready" exploration projects. Both of these have come from the Canadian-based LionOre Mining International, which is switching from mining to mineral processing and technology development.
The rebirth of Breakaway has seen a corporate makeover and the raising of $13.5 million in fresh capital. The capital complements cash from royalties generated by a copper project in Queensland.
Armed with cash, skilled management and a vast tenement package, Breakaway is expected to generate a news flow to boost its profile as a promising explorer.
Rox Resources
Floated just two years ago, Rox (RXL) has spent most of its life in the sin bin with a share price of about half the 20 ¢ paid by foundation investors.
This saw it face the classic dilemma of all explorers ¿ either discover something or struggle to raise fresh capital.
But everything changed earlier this year when Rox announced the discovery of a potentially world-class zinc and lead deposit in Laos, in South-East Asia. Spectacular assays from drilling saw the company's share price soar from 9 ¢ to 65 ¢ in a matter of days, rewarding the few who stuck with the stock.
More work is required at the Pha Luang project but professional investors have spotted the potential, chipping in another $6 million to fund more drilling in a country that once seemed remote and inhospitable, but which has gained credibility following the success enjoyed by copper and gold producer Oxiana (OXR) at its mine in Laos.
Minotaur Exploration
This company has turned exploration into a legitimate business. Five years ago, when trading as Minotaur Resources, the company discovered the Prominent Hill copper and gold ore body in South Australia, which initially attracted BHP Billiton (BHP) as a partner, but was later sold to Oxiana.
The process of discovery and sale was complex, and led to the dissolution of Minotaur Resources, and the birth of Minotaur Exploration (MEP), with roughly the same management and package of tenements. Minotaur has cemented its relationship with Oxiana, spun off a uranium exploration company, Toro Energy (TOE), and acquired stakes in other explorers, including Mithril Resources (MTH) and geothermal energy company Petratherm (PTR).
Minotaur could dispose of advanced exploration projects for cash or sell them to alliance partners such as Oxiana, which uses Minotaur as a project generation business....
...Salinas Energy
Largely unknown to local investors because it has chosen to do its oil and gas exploring in the US, Salinas (SAE) is an Australian business run by a management team with a record of discovery best seen through an earlier business called Voyager Energy.
An independent operator until late last year, Voyager was a partner in a series of oil discoveries in WA, eventually proving to be a tasty takeover morsel for Arc Energy (ARQ).
Rather than move to Arc, the Voyager team struck out with Salinas, and an oil and gas tenement package in California. Managing director John Begg says his aim for Salinas is to increase business to a market value of $500 million within three years, a target that implies strong production and a reserve of 20 million barrels of oil.
Begg's record at Voyager indicates that the target might be achievable. If not, he's shown himself willing to take a profit rather than hang around for production build-up.
BEST SMALL PRODUCERS
Perilya
limited
Mark Twain's comment about reports of his death being exaggerated also applies to the plum asset inside Perilya (PEM), the fabulous silver, lead and zinc mines of Broken Hill. Ignored by bigger companies as too old and difficult, Perilya has restored the mines and is starting to spin off fat profits.
At June 30, the once-struggling gold producer had $135 million in the bank, largely thanks to high zinc prices, and was producing a quarterly cash flow of more than $70 million.
The key to cash is the gap between a zinc production cost of US66 ¢ a pound and a zinc price of more than $US1.50 a pound.
More can be expected from Perilya as it expands production at the old mines and opens new ore bodies.
There is also potential for revival in the company's gold division where there is one mine, Daisy Milano in WA, being developed, and at least five other projects in the exploration phase.
Consolidated Minerals
Marked down severely after a fall in the price of manganese - Consolidated's (CSM) primary product - and an internal management brawl, there are positive signals from a company that is mapping out a future as a nickel producer.
Disillusioned investors are yet to reward Consolidated for its change of focus. However, with the price of nickel stuck sky high at more than $US25,000 a tonne, there is little doubt that Consolidated is a revival in the making.
Key assets, apart from the manganese cash cow in the Woodie Woodie mine, are the Beta Hunt and Alpha nickel mines in WA and a big tenement package that contains a large resource of nickel. Capping off the nickel strategy is the potential to create value from the acquisition of troubled nickel explorer Titan Resources (TIR). Trials with a new ore-sorting system could see Titan become a jewel in Consolidated's nickel-plated crown.
Aust. Worldwide Exploration
Overlooked in the 2005 stampede into petroleum stocks created by the oil price rise, Australian Worldwide (AWE; see page 90) is emerging as one of the best-placed companies in the thin ranks of the local mid-tier oil and gas sector.
Cash flow from a string of new projects has backed aggressive exploration, making AWE a stock to watch and a takeover target.
The company has three key assets in production: the Bassgas and Casino gas projects in Victoria and South Australia respectively, and the Cliff Head oil project in WA.
Cash on hand totals more than $227 million with the 2007 pre-tax and depreciation profit forecast at around $120 million. Apart from cash and production, the real kicker with AWE may be potential from its exploration of nine wells over the next year. Given historic success of 25 per cent, at least two wells may lead to future development opportunities.
Straits
Resources
Three years ago, when most investors were ignoring metals, Straits Resources (SRL) pocketed a handsome $90 million profit from the sale of the Nifty copper mine in WA to Indian group Aditya Birla.
Armed with the cash, Straits invested in expanded coal production from its Sebuku mine in Indonesia, gold from the Mt Muro mine, also in Indonesia, and copper from the Tritton mine in NSW. The result is a business developing a balanced portfolio of energy and mineral assets.
The outlook, which potentially includes the development of a gold and antimony mine at Hillgrove in NSW, is of a business that may soon have five operating mines, boosting a revenue base of about $500 million a year thanks to high coal, copper and gold prices. The market, which had treated Straits harshly after the Nifty sale, is slowly warming to the stock, more than doubling its share price over the past year.
Kagara Zinc limited
Operating in the remote far north Queensland, Kagara (KZL) has been one of the genuine surprise performers over the past year thanks to high zinc prices and the promise of increased copper and gold production.
The key to Kagara is a series of mines and exploration prospects along a richly mineralised sequence of rocks near Cairns.
The area has seen waves of development over the past 100 years and is dotted with historic mines. Kagara snapped up the lion's share of the best ground in the region after its 1999 float, a time when minerals were in the doldrums, and Kagara was the only mining float of that year; a classicfirst-mover advantage.
Today, Kagara is producing zinc and copper from various locations, and planning to become a substantial gold and silver producer. Next year, thanks to new mines, zinc output is forecast to reach 50,000 tonnes, and copper output should rise to 30,000 tonnes. Si
nizar said:Thanks Nick
Gee I hope youre right canuck- But I wish you'd be more specific in defining your terms - by breakout do you mean .46? .50? 1.00? Like you say, fingers crossed.CanOz said:CBH is on the move but its going to be an effort to plough through the sellers today. If it breaks .42 it may breakout. Fingers crossed.
michael_selway said:Yep, ZFX, KZL, PEM, CBH all doing well now
2020hindsight said:Gee I hope youre right canuck- But I wish you'd be more specific in defining your terms - by breakout do you mean .46? .50? 1.00? Like you say, fingers crossed.
nizar said:Yeh but KZL the only one at all time highs...
sleeper88 said:Well since all zinc stocks are going up..anyone have any thoughts on TZN?
YOUNG_TRADER said:Fat Prophets Buy Recommendation up to 46c (Will take it up to resistance level)
Volume has really picked up, watch for a break above 46c, it'll be a hard fight though
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?