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Jan 2008 - Year End & China

  • 2008 appears to be heading for a year of M & A activity, especially of the junior Australian metal producers, with possible premiums of 35% to 40% being paid.
  • The nickel sulphide producers could be prominent in the activity, and our conceptual order of value is Albidon, Sally Malay, Mincor & then Independence
  • While China would love to have lower metal prices, the developing countries are in synchronised growth mode. One of the metals to watch may be Cobalt (now ~US$45/lb) which could focus the market on ALB, SMY, MRE and VCN.
  • This comment is based on ERA’s (my) last visit to the China Mining (November) 2007 Conference in Beijing, in which I visiting Golden Tiger’s operations in Guangxi during the week before the conference, attended the conference and saw a number of blue skies over Beijing (after winds had blown away the smoke from burning-off the rice fields). It was actually even possibly to see the distant mountains (~50km away) at the end of some of the streets.
  • China realises what its metal requirements are and hence would love to have lower metal prices, by any means possible (even if it means taking over [or a blocking stake in] RIO by a consortium of companies). The mid-2008 stainless steel sabre-rattling can only be done so many times before the market becomes immune to it. It was commented at the conference that this is the first time that the developing countries are in synchronised growth mode, following in China’s footsteps. The US was expected to stumble and possibly still have a psychological impact on the market, but the reality was that it appeared unlikely to reduce the pace of world growth by more than 0.5%.
  • So, following on from INCO and Falconbridge, LionOre has gone (to Norilsk), Xstrata has acquired ~43% of Jubilee, and in a pincer movement Zinifex has offered $1/share for Allegiance (AGM). AGM closed at A$1.07 on 31 December 2007, inferring that the market is looking for more. At the recent China Mining Conference, AGM stated that it now had 3 stopes on line, was looking at possibly a 50% expansion, had a number of regional exploration targets, was on-track for MQ08 production, and had some higher grade nickel sulphide ore as shown in the presentation.
  • Written by: Keith Goode
  • Monday, 07 January 2008

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