Value in Resource Stocks
- Thread starter YOUNG_TRADER
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Guys read this. This is an extract taken from sanfords website. Some "around the traps" thread that is written. He has grabbed details off the timesonline website. Is this a worry?
We don't want to ruin investors' day but there's a report on the
Timesonline website which will, ah, interest them:
Conditions in the financial markets are eerily similar to those
that precipitated the "Black Monday" stock market crash of October 1987,
according to leading City analysts.
A report by Barclays Capital says the run-up to the 1987 crash
was characterised by a widening US current-account deficit, weak dollar,
fears of rising inflation, a fading boom in American house prices, and
the appointment of a new chairman of the Federal Reserve Board.
All have been happening in recent months, with market nerves on
edge last week over fears of higher inflation and a tumbling dollar, and
the perception of mixed messages on interest rates from Ben Bernanke,
the new Fed chairman.
"We are very uncomfortable about predicting financial crises,
but we cannot help but see a certain similarity between the current
economic and market conditions and the environment that led to the
stock-market crash of October 1987," said David Woo, head of global
foreign-exchange strategy at Barclays Capital.
Apart from the similarities in economic conditions, during the
run-up to the 1987 crash there was a sharp rise in share prices
worldwide and weakness in bond markets, Woo pointed out.
"Market patterns leading to the crash of 1987 resemble the
markets today," he said.
We don't want to ruin investors' day but there's a report on the
Timesonline website which will, ah, interest them:
Conditions in the financial markets are eerily similar to those
that precipitated the "Black Monday" stock market crash of October 1987,
according to leading City analysts.
A report by Barclays Capital says the run-up to the 1987 crash
was characterised by a widening US current-account deficit, weak dollar,
fears of rising inflation, a fading boom in American house prices, and
the appointment of a new chairman of the Federal Reserve Board.
All have been happening in recent months, with market nerves on
edge last week over fears of higher inflation and a tumbling dollar, and
the perception of mixed messages on interest rates from Ben Bernanke,
the new Fed chairman.
"We are very uncomfortable about predicting financial crises,
but we cannot help but see a certain similarity between the current
economic and market conditions and the environment that led to the
stock-market crash of October 1987," said David Woo, head of global
foreign-exchange strategy at Barclays Capital.
Apart from the similarities in economic conditions, during the
run-up to the 1987 crash there was a sharp rise in share prices
worldwide and weakness in bond markets, Woo pointed out.
"Market patterns leading to the crash of 1987 resemble the
markets today," he said.
professor_frink
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I posted a link to that article in "the stockmarket is crashing" thread if you want to read the whole thing
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out of interest how often do we get times with conditions close to conditions at stock market crashes but not get stock market crashes?
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The big difference between 87 and now.
The DOW had been going UP like a skyrocket (pull back around this time of year)
These where the days of buying on the dips --- and it worked for a few years.
The DOW had been going UP like a skyrocket (pull back around this time of year)
These where the days of buying on the dips --- and it worked for a few years.
Sean K
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It's more psychology than fundamental I reckon, so keep talking it up and we'll have one!
I dont think its more psychology. It will happen if its going to happen. Personally I havnt sold any of my stocks. Ive taken a battering but im still in it because I believe the market will come back. A lot is going to rely on the economic data that is released from the USA. Lets all have a little prayer. Hope it isnt too bad 
In the end China and India are still going to need metals and oil and uranium. So hey i reckon this fall will only last a few months and we will be back on track. I just wanted to see the opinions of others
In the end China and India are still going to need metals and oil and uranium. So hey i reckon this fall will only last a few months and we will be back on track. I just wanted to see the opinions of others
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It's a bit of a game in these volatile markets that look set to stay that way for a longtime yet. It's a case of doing your homework well. Finding coal, iron ore etc., is great, with a big but, $5 million is peanuts and without joint venture partners it's tough in these markets to raise enough cash. Partners need to be able to take the commodity themselves and be experienced sellers of it.
Is the commodities price fixed to good growth requirements in world markets. Or is it a needed commodity to supply power to cities, such as thermal coal.
How deep is the commodity, if its good quality hematite at 65% FE or better and at a depth of up to 350 metres that's not bad. Some depths at close to 1,000 metres raise questions. Can it be easily dug out or is there hard rock present.
Watch out for these tenements that are close to big finds, so are lots more tenements. Close to Oxiana etc., is just a case of name dropping.
We are exploring for Uranium and it's risen 20-fold in the last 3 years, so what, they haven't got any.
They've surveyed the area and have found an anomaly that looks like a large deposit of coal, iron ore etc., Lots of costly drilling to follow up, if they can get a rig that quickly.
Then comes the placing of stock and shareholders putting another $5,000 up and so it goes on.
The Founding Directors are not risking much as they got in cheap long before the IPO.
There are railing costs and have they got permission to use another companies railway and is there enough capacity. How far away is the port and can it handle all the extra commodity.
A find may cost up to $100 million to setup a mine. So that $5 million in the bank is a paltry sum.
...and so it goes on, especially if the company has not got much mining expertise on their board of directors and have to bring in expensive MD's etc.,
Don't let me put you off, there are great winners to come out there, but the sector is high risk to very high risk. So take care with money you either can't afford to lose or if you are likely to get into a forced sellers position.
Is the commodities price fixed to good growth requirements in world markets. Or is it a needed commodity to supply power to cities, such as thermal coal.
How deep is the commodity, if its good quality hematite at 65% FE or better and at a depth of up to 350 metres that's not bad. Some depths at close to 1,000 metres raise questions. Can it be easily dug out or is there hard rock present.
Watch out for these tenements that are close to big finds, so are lots more tenements. Close to Oxiana etc., is just a case of name dropping.
We are exploring for Uranium and it's risen 20-fold in the last 3 years, so what, they haven't got any.
They've surveyed the area and have found an anomaly that looks like a large deposit of coal, iron ore etc., Lots of costly drilling to follow up, if they can get a rig that quickly.
Then comes the placing of stock and shareholders putting another $5,000 up and so it goes on.
The Founding Directors are not risking much as they got in cheap long before the IPO.
There are railing costs and have they got permission to use another companies railway and is there enough capacity. How far away is the port and can it handle all the extra commodity.
A find may cost up to $100 million to setup a mine. So that $5 million in the bank is a paltry sum.
...and so it goes on, especially if the company has not got much mining expertise on their board of directors and have to bring in expensive MD's etc.,
Don't let me put you off, there are great winners to come out there, but the sector is high risk to very high risk. So take care with money you either can't afford to lose or if you are likely to get into a forced sellers position.
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Posted this not knowing what would happen a few weeks down the line. Only difference is that most stocks are cheaper now and there has got to be a lot more value out there.
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Time to look, me thinks, at those bombed out uranium explorers. Fair enough, they ain't got any Uranium, but the bombing has been worse than Dresden ( bombed to ground level in WW2).
***Have been known to be wrong, however...
***Have been known to be wrong, however...
Came across this article in the Sydney Morning Herald today, well worth a read.
Some unloved stocks are now a third of the price that they deserve to be and the share market rout presents bargains for retail investors and corporate predators, analysts say.
Cheap share market valuations have led to strong merger and acquisition (M&A) activity, particularly in the resources sector. The the most recent example is the Lihir Gold/Equigold NL combination announced on Friday, and a takeover bid by Indophil Resources NL for Lion Selection Ltd announced on Thursday.
"And we're going to be more of this, there is no doubt," said independent analyst Peter Strachan.
CopperCo Ltd, which is merging with Mineral Securities Ltd, was a prime example of a company now priced at a third of its value, he said.
Mr Strachan said many companies were trading at bargain basement, bottom-of-the-cycle levels.
"They're probably three to five per cent from the bottom in any continued downward movement, which I think we're going to get," Mr Strachan said.
"The stocks that stick out are property developers and property trusts, and also financials: the main banks, Suncorp-Metway and ANZ particularly.
"Those stocks have fallen 50 per cent.
"I know there will be profit downgrades from the banks ... but I still think, if you take a two or three year views, those stocks are looking particularly cheap."
Mr Strachan said oil and gas producers such as Petsec Energy Ltd, Arc Energy Ltd, AWE Ltd and Roc Oil Company Ltd represented extraordinary value.
"Petsec ... would spit out the same amount of cash as you would pay to buy the company in about 14 months."
While not yet producers, oil and gas explorers Otto Energy Ltd and Nexus Energy Ltd were also good value, he said.
"Any company that's got oil and gas assets, as opposed to undertaking pure exploration, looks cheap."
Mr Strachan said the energy sector had lost favour with investors due to a lack of recent exploration success and operational woes at projects including AED's Puffin field and the Anzon Australia Ltd-operated Basker Manta Gummy joint venture.
Mr Strachan said a string of high profile dusters - dry wells - included Adelphi Energy Ltd's Sugarloaf project in the United States and others in Mauritania and China's Beibu Gulf.
He said some companies servicing the resource sector offered better value than others, with GRD Ltd, RCR Tomlinson Ltd and Monadelphous Group Ltd being the top picks.
Among this sector, the most expensive stocks included United Group Ltd, Leighton Holdings Ltd and WorleyParsons Ltd, he added.
He said BHP Billiton Ltd and Rio Tinto Ltd, which comprise 20 per cent of the S&P/ASX 200, were highly priced.
"If Rio goes back to $80 and BHP goes back to $28 to $29, we'll see this market back at 4,800 points, and that's when I'd be looking to pick up some stock."
In a research note on Sunday, brokerage DJ Carmichael said the companies that were merging were acquiring targets with large sums of cash.
"This makes sense in these difficult times of raising debt to build large projects," the brokerage said.
As for future M&A targets, DJ Carmichael singled out Murchison Metals Ltd and Mount Gibson Iron Ore Ltd, as potential targets.
Murchison has cash and liquid investments of about $190 million and Mount Gibson, $120 million.
DJ Carmichael also pointed to Troy Resources NL, a 60,000 ounce-a-year gold producer with $80 million in cash and an enterprise value of about $100 million.
Not only are companies including Moly Mines Ltd facing deferred project development as financing arrangements become increasingly hard to complete, new floats were drying up, DJ Carmichael resources analyst James Wilson said.
While retail investors should be making the most of the current fire sale, they remained averse to risk, Mr Wilson said.
There were "bargains galore" to be had, he said.
http://news.smh.com.au/slump-offers-bargains-for-investors/20080324-216o.html
Some unloved stocks are now a third of the price that they deserve to be and the share market rout presents bargains for retail investors and corporate predators, analysts say.
Cheap share market valuations have led to strong merger and acquisition (M&A) activity, particularly in the resources sector. The the most recent example is the Lihir Gold/Equigold NL combination announced on Friday, and a takeover bid by Indophil Resources NL for Lion Selection Ltd announced on Thursday.
"And we're going to be more of this, there is no doubt," said independent analyst Peter Strachan.
CopperCo Ltd, which is merging with Mineral Securities Ltd, was a prime example of a company now priced at a third of its value, he said.
Mr Strachan said many companies were trading at bargain basement, bottom-of-the-cycle levels.
"They're probably three to five per cent from the bottom in any continued downward movement, which I think we're going to get," Mr Strachan said.
"The stocks that stick out are property developers and property trusts, and also financials: the main banks, Suncorp-Metway and ANZ particularly.
"Those stocks have fallen 50 per cent.
"I know there will be profit downgrades from the banks ... but I still think, if you take a two or three year views, those stocks are looking particularly cheap."
Mr Strachan said oil and gas producers such as Petsec Energy Ltd, Arc Energy Ltd, AWE Ltd and Roc Oil Company Ltd represented extraordinary value.
"Petsec ... would spit out the same amount of cash as you would pay to buy the company in about 14 months."
While not yet producers, oil and gas explorers Otto Energy Ltd and Nexus Energy Ltd were also good value, he said.
"Any company that's got oil and gas assets, as opposed to undertaking pure exploration, looks cheap."
Mr Strachan said the energy sector had lost favour with investors due to a lack of recent exploration success and operational woes at projects including AED's Puffin field and the Anzon Australia Ltd-operated Basker Manta Gummy joint venture.
Mr Strachan said a string of high profile dusters - dry wells - included Adelphi Energy Ltd's Sugarloaf project in the United States and others in Mauritania and China's Beibu Gulf.
He said some companies servicing the resource sector offered better value than others, with GRD Ltd, RCR Tomlinson Ltd and Monadelphous Group Ltd being the top picks.
Among this sector, the most expensive stocks included United Group Ltd, Leighton Holdings Ltd and WorleyParsons Ltd, he added.
He said BHP Billiton Ltd and Rio Tinto Ltd, which comprise 20 per cent of the S&P/ASX 200, were highly priced.
"If Rio goes back to $80 and BHP goes back to $28 to $29, we'll see this market back at 4,800 points, and that's when I'd be looking to pick up some stock."
In a research note on Sunday, brokerage DJ Carmichael said the companies that were merging were acquiring targets with large sums of cash.
"This makes sense in these difficult times of raising debt to build large projects," the brokerage said.
As for future M&A targets, DJ Carmichael singled out Murchison Metals Ltd and Mount Gibson Iron Ore Ltd, as potential targets.
Murchison has cash and liquid investments of about $190 million and Mount Gibson, $120 million.
DJ Carmichael also pointed to Troy Resources NL, a 60,000 ounce-a-year gold producer with $80 million in cash and an enterprise value of about $100 million.
Not only are companies including Moly Mines Ltd facing deferred project development as financing arrangements become increasingly hard to complete, new floats were drying up, DJ Carmichael resources analyst James Wilson said.
While retail investors should be making the most of the current fire sale, they remained averse to risk, Mr Wilson said.
There were "bargains galore" to be had, he said.
http://news.smh.com.au/slump-offers-bargains-for-investors/20080324-216o.html
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Resource explorer stocks don't really have a bottom and can go down to any price. Nothing to base them on and if they have little cash, no JV's, they could be worth nowt. Even with plenty of cash it may not be good as its all earmarked for exploration. Deep discounted rights issues and placings become the order of the day.
Companies with good reserves, plenty of cash, good rail services, and good shipping set ups, are ones that get to become good value in these markets. They won't go under and its possible to work out a price for them.
Coal and oil should hold up well, especially the former. Iron ore may have some downside but producers are ones to watch.
As they say though, "just because a stock is very cheap doesn't mean it's not going to get even cheaper".
Companies with good reserves, plenty of cash, good rail services, and good shipping set ups, are ones that get to become good value in these markets. They won't go under and its possible to work out a price for them.
Coal and oil should hold up well, especially the former. Iron ore may have some downside but producers are ones to watch.
As they say though, "just because a stock is very cheap doesn't mean it's not going to get even cheaper".
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Well thought I'd dig up this old thread for a bit of reflection, as again the Mkts are really dirty and toxic at the moment, nothing is being given anywhere near fair value, yet some stocks have bucked the trend while others that are already cheap are becoming cheaper
Interestingly on reflecting I realised some of the biggest gains/profits I have made have come from buying what I thought were fundamentally undervalued/dirt cheap stocks during the fear and panic of a correction,
So far its worked really well for me over the past few years, so I'm sticking with it and committing my cash to buying up stocks in certain key commodity sectors
Fundamentally for me a few sectors offer excellent fundamental value
1. Iron Ore - it is a bulk commodity whose price is determined by ling term annual contracts which have just risen another 95% ensuring plenty of profits for those lucky few who can get into production quick enough, but also tasty takeover stories for those who can firm up a big enough resource
2. Manganese - Its price is even hotter that Iron ore and the odd company that can find a deposit and get it into production becomes a star, see CSM and OMH, also the odd spec explorer can command a huge mkt cap regardless of success see AQD, need to find some good exposures
3. Oil Gas, CBM CSG (especailly in the hot takeover area of East Coast Aust ie Qld NSW, this is an excellent long term sector to get into to supply the power hungry States of Qld NSW and Vic, the hard part is finding a decent enough company thats not too expensive
4. Coal - With such massive 200%-300% price rises it is very difficult to ignore the fact that Coal is now one of the most profitable sectors to be in
5. Agri - Again massive price increases have meant that Agri/fertilizers are now a very very profitable business and given the fact that we need them for our food ensures that regardless of price the commodity
Interestingly on reflecting I realised some of the biggest gains/profits I have made have come from buying what I thought were fundamentally undervalued/dirt cheap stocks during the fear and panic of a correction,
So far its worked really well for me over the past few years, so I'm sticking with it and committing my cash to buying up stocks in certain key commodity sectors
Fundamentally for me a few sectors offer excellent fundamental value
1. Iron Ore - it is a bulk commodity whose price is determined by ling term annual contracts which have just risen another 95% ensuring plenty of profits for those lucky few who can get into production quick enough, but also tasty takeover stories for those who can firm up a big enough resource
2. Manganese - Its price is even hotter that Iron ore and the odd company that can find a deposit and get it into production becomes a star, see CSM and OMH, also the odd spec explorer can command a huge mkt cap regardless of success see AQD, need to find some good exposures
3. Oil Gas, CBM CSG (especailly in the hot takeover area of East Coast Aust ie Qld NSW, this is an excellent long term sector to get into to supply the power hungry States of Qld NSW and Vic, the hard part is finding a decent enough company thats not too expensive
4. Coal - With such massive 200%-300% price rises it is very difficult to ignore the fact that Coal is now one of the most profitable sectors to be in
5. Agri - Again massive price increases have meant that Agri/fertilizers are now a very very profitable business and given the fact that we need them for our food ensures that regardless of price the commodity
Thought I'd respond to this by mentioning Archer Exploration (AXE)
Carrapee Hill
- Iron ore grades of up to 57% and Manganese grades of up to 38%
- 55 km from deep water port of Whyalla, SA
- 2000m/18 hole drilling campaign just completed, assay results out in 6 weeks
Disclosure: holding a small parcel
michael_selway
Coal & Phosphate, thats it!
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Hi YT, just wondering, what order of preference at current prices do you have those 5 sectors you mentioned above
thx
MS
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Hi Michael its hard to say
Iron Ore and Coal are excellent as they are YEARLY pricing contracts and thus are not subject to daily fluctuations or swings
But CSG/CSM is red red hot at the moment too,
Then again BHP has just done a takeover/acquistion deal with NHC for like $5Billion for some Coal deposit
Also Potash prices have hit record highs as of tonight http://www.canada.com/vancouversun/news/business/story.html?id=957890ea-3a6d-4024-903a-da2f7a34b790
So its hard I like all of the sectors mentioned but am definately much more Iron Ore focused
I really really want to get amongst the CSG/CSM sector though and also add to my Coal exposures
Iron Ore and Coal are excellent as they are YEARLY pricing contracts and thus are not subject to daily fluctuations or swings
But CSG/CSM is red red hot at the moment too,
Then again BHP has just done a takeover/acquistion deal with NHC for like $5Billion for some Coal deposit
Also Potash prices have hit record highs as of tonight http://www.canada.com/vancouversun/news/business/story.html?id=957890ea-3a6d-4024-903a-da2f7a34b790
So its hard I like all of the sectors mentioned but am definately much more Iron Ore focused
I really really want to get amongst the CSG/CSM sector though and also add to my Coal exposures
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YT - and if you look around right at this point in time most of the solid spec stocks in those fields have been truly SMASHED right now.
If I had the capital I'd certainly be enlarging my position.
If I had the capital I'd certainly be enlarging my position.
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Omg so many good resource stocks are getting slammed
Cheap stocks get cheaper
Yet the actual prices for Iron Ore Coal and Oil are soo strong
Such a divergence
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which stocks are you referring to?
