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2009

Feb 2009 - Year End & China

  • Well it was a nice rally over the Christmas/New Year period, it seems hard to believe that Albidon quadrupled to 32c or Panoramic touched $1.42/share, along with many other price rises, before the doom and gloom settled back in, on plenty of negative media releases.
  • Perhaps we should change the western world years to conform to the Chinese ones, after all China has basically been on holiday up until now. The Year of the Ox started on 26 Jan 2009, and China was still on holiday for the week after that. Since China has such a significant impact on world metals’ demand and even if it is only 7% GDP growth on 2008, it is still growth (and in fact about 3 or 4 years’ ago, 7%pa was in fact the target). [Of course, the actual growth rate may still be up to 1.5% higher than an official stated 7% growth rate].
  • We have actually seen a number of positive releases relating to China, along the lines of metal restocking immediately ahead of Chinese New Year, rising spot iron ore prices (its almost doubled from the US$40/t lows of early Nov 08 to about US$75 to US$80/t), Jinchuan forecasting an increase to 125,000t of nickel production (from ~ 110,000t) in 2009, etc. – but virtually none of that appears to have been reported in the Australian press.
  • We possibly were too optimistic with our scenario expectation of the early stages of a commodity market recovery occurring in March/April 2009 (probably led by nickel), but it is still very early in the 2009 year to push that recovery expectation out to 2010, especially as China has not really started yet.
  • At the China Mining Conference in Beijing in November 2008, we attended the commodity sessions, for which the general main points were that;
  • China needs the grade and the orebodies. It is not really bothered about the next 3 years, more how to fill in the growth demand gap from years 20 to 40, and hence wants to control orebodies outside of China to achieve that goal (either by funding companies or controlling them – acquisitions to be done at bargained prices).
  • It also thought that it was criminal to hold countries to ransom (like BHP and RIO) on the iron ore prices, companies can make reasonable profits, not excessive profits.

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Aug 2009 - DnD - SLR

Buy Silver Lake Resources (SLR)

  • There were a number of available mine site visits before, during and after this years’ Diggers (which was apparently the highest attended so far). Many people remarked that they were surprised by the number of local and large international fund managers at this years’ Diggers. The mood was certainly more upbeat, possibly due to the higher share and commodity prices compared to last years’ approaching cliff to fall from.
  • We were part of a group that visited Silver Lake’s Daisy Milano during the conference (during most of Tuesday – the 2nd day). This review is based on that visit and SLR’s presentation at Diggers.
  • Silver Lake (SLR) - Buy at A$0.645
  • Silver Lake continues to move from strength to strength as SLR’s understanding of the Daisy Milano orebody and goldfield continues to evolve. The SLR trip consisted of an open-cut followed

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Aug 2009 - DnD - NGF

Spec Buy Norton Goldfields (NGF)

  • There were a number of available mine site visits before, during and after this years’ Diggers (which was apparently the highest attended so far). Many people remarked that they were surprised by the number of local and large international fund managers at this years’ Diggers. The mood was certainly more upbeat, possibly due to the higher share and commodity prices compared to last years’ approaching cliff edge to fall from.
  • We were part of a group that visited Norton Goldfields’ operations at Paddington on the Sunday afternoon (2 August 2009) before the conference. This review is based on that visit and NGF’s presentation at Diggers.
  • Norton Goldfields (NGF) - Spec Buy at A$0.19
  • NGF appears to currently be a high cost operation producing ~35,000oz per qtr at a total cash cost of A$955/oz in JQ09, that is only expected to materially improve in early 2010 as the new Homestead underground comes into production. We notice that the individual mining companies are beginning to diverge again when it comes to including what costs in the total cash costs, especially as regards the woolly areas of royalties and capex. NGF’s operating cash cost method is possibly on the conservative side as they were A$720/oz including royalties in JQ09.
  • NGF were applying a number of measures aimed at reducing their cash costs such as the 3 methods of reducing overburden removal costs shown in Figure 1a. Norton estimate that the use of these techniques has reduced their usual costs of up to $9/bcm down to $2.50/bcm to $6/bcm, and have a target of reducing their costs to $5/bcm (divide the bcm by the SG to get tonnes).

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Aug 2009 - DnD - NGF, SLR

Spec Buy NGF ; Buy SLR

  • There were a number of available mine site visits before, during and after this years’ Diggers (which was apparently the highest attended so far). Many people remarked that they were surprised by the number of local & large international fund managers at this years’ Diggers, possibly because the performance by the major gold stocks (apart from Anglogold) has been so poor. The mood was certainly more upbeat, possibly due to the higher share and commodity prices compared to last years’ approaching cliff edge.
  • We were part of groups that visited Norton Goldfields’ Paddington before the conference, Silver Lake’s Daisy Milano during the conference (during most of Tuesday – the 2nd day) and Catalpa’s Edna May afterwards. Catalpa is our next report and is hence not included in this review. You do wonder though whether the group members on the visits do realise what they are seeing on a visit, especially in the case of Silver Lake’s further new additional mineralisation underground at Daisy Milano.
  • We did not attend all the sessions, and there were many rumours and comments, and some of the perceptions have already affected share prices as in the case of Magma Metals (MMB) and Troy (TRY). The following is based on general comments that we encountered and perceptions that we made :
  • Who appears to be doing well : Silver Lake (SLR) stands out, followed by Avoca (AVO). Most of the nickel plays seemed upbeat as in Panoramic (PAN), Mincor (MCR) restarting Miitel and Western Areas (WSA), with Independence (IGO)’s lower guidance of 8kt to 8,4ktNi for 09/10 possibly recovering back towards 9ktNi as Moran was currently expected to be developed from JQ2010, and of course IGO has its 30% of Tropicana.
  • Pan Aust (PNA) referred to a possible new drill-ready discovery called Ban Phonxai about 20km from Phu Kham (PK’s grades were expected to increase due to the infill drilling) and the 33% expansion of PK was to be made at the end of 2010 for commissioning in JH2012, with the feasibility study on its ~A$130m >100kozpaAu/>700kozpaAg Ban Houayxai gold project due in MQ2010, ideally producing in DH2011. Terry at OZ Minerals (OZL) thought that a deficiency gap was approaching in copper and most projects needed US$2.50/lb to justify approval. Terry rated OZL’s current strategy as probably 1 copper, 2 gold, were recommencing underground studies at Prominent Hill, were keen on junior JVs and was undertaking a 100-day strategic review, with more details to come.

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