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Tagged with: Reviews

Jul 2003 - PayDirt Conference

SWITCH from ZIM to AQP, Poss Spec Buy PPD

  • We attended the Paydirt Platinum Conference on 14-15 July 2003 in Perth, and about a week before that, a South African lunch with the SA Minister of Mines and SA High Commissioner which elaborated on some of the BEE aspects and changes. We have subdivided this one-off comment into 3 areas, namely, the outlook for commodities such as platinum, palladium and nickel; our observations on presentations by AQP, AXM, CSM, LIM, IGO, PLA, PPD and ZIM; and the SA lunch.
  • The outlook for platinum and palladium is mainly based on an excellent presentation by Johnson Matthey (JM) who advertised their new website (www.platinum.matthey.com) which contains a lot more newsy items etc than it previously used to. The outlook for nickel is based on a mix of the presentations but mainly on CSM’s view of chrome demand in China based on their stainless steel outlook.
  • The presentation by JM focused on what had caused the price fluctuations so far this year (to June 2003), namely Chinese jewellery demand stopping at US$700/oz, funds liquidating their long positions, SARS occurring at the second annual seasonal demand time (there are 3 per year : Chinese New Year, May and October). Then Chinese jewellery demand came back, plus the weakness in the US$ and Bush’s comments about fuel cells prompted the funds to return and drive the price back up to about US$650/oz. Platinum to December 2003 and beyond : (Appears to be in short supply, could rise further).
  • Platinum supply is short. The 50% increases in the total production from South Africa and Zimbabwe by 2007 are needed to achieve a balance between supply and demand, any hiccup and there is a shortage. If demand wants to rise further faster, then it can’t, there is simply not enough.
  • The platinum market has been helped (to remain in balance) by Russian and Swiss sales. However, the Russian selling is believed to have effectively gone. Russian sales were down from 1.3moz in 2001 to 980,000oz in 2002, and the 2002 sales were inflated by repaying a platinum based bank loan. So current sales are believed to be just Norilsk and Far Eastern Russian production. The platinum deficit increased from 370,000oz in 2001 to 570,000oz in 2002. It has been kept in check by the Swiss reducing their stock levels by 1.5moz over the past few years, to result in a major shortage of above-ground stocks of platinum. JM was leaving their forecast of US$590/oz to US$690/oz to the end of 2003, the inference being.

Jan 2004 - Year End Review

  • This comment is based on what had happened by 31 December 2003 to the share prices of the 17 companies on which we completed 20 reports during 2003, followed by some general observations on the progress being made by those companies. The following table shows the appreciations made by each company’s share from the date of the report to 31 December 2003.
Company ASX Code Report Report Size Share Price Share Price Appreciation


Date
A$ 31-Dec-03 %
Abelle Ltd ABX 9-Sep 12 1.59 1.8 13%
Aquarius Platinum AQP 9-May 12 5.35 7.9 48%
Consolidated Min CSM 7-Feb 8 0.62 0.95 53%
Exco Resources EXS 18-Nov 4 0.225 0.205 -9%
Goldstar Resources GDR 30-Oct 6 0.25 0.31 24%
Heritage Gold (NZ) HTM 17-Jun 6 0.026 0.045 73%
Independence Gold IGO 10-Feb 8 0.355 1.3 266%
Independence Gold IGO 25-Mar 4 0.32 1.3 306%
Independence Gold IGO 11-Aug 2 0.46 1.3 183%
Kanowna Lights KLS 7-Feb 4 0.027 0.024 -11%
LionOre Mining LIM 9-Jul 12 6.19 8.15 32%
Lodestone (IPO) LOD 23-Jan 4 0.2 0.11 -45%
Michelago Ltd MIC 31-Jul 6 0.038 0.13 242%
Michelago Ltd MIC 3-Oct 8 0.135 0.13 -4%
Minotaur Resources MNR 15-Oct 6 0.91 1.25 37%
Pan Australian PNA 25-Jul 6 0.073 0.19 160%
Perth Mint Gold ZAUWBA 19-Jun 2 5.41 5.59 3%
Red Metal (IPO) RDM 24-Oct 6 0.2 0.32 60%
Terramin Aust (IPO) TZN 21-Nov 4 0.2 0.21 5%
Zimplats Ltd ZIM 7-Apr 8 2.8 3.95 41%
  • The highest appreciation was achieved by Independence Gold at just over 300%, followed by Michelago Ltd, and then Pan Australian. The two disappointments were Lodestone which failed to attain its anticipated intersections, and Kanowna Lights which dropped its intended project. Exco is trading thinly and had already rebounded to A$0.22 on 2 January 2004. Terramin’s report was dated 21 November, but only listed on 23 December and has hence barely traded.
  • For 2004, we initially have 4 reports in progress which are expected to be completed in the approximate order of Agincourt, Pan Palladium, Gallery Gold and Albidon (a new IPO). We visited Agincourt’s Wiluna mine in mid-November 2003, followed by Pan Palladium in South Africa, Gallery Gold in Botswana, and Albidon in Zambia over the end of November / early December 2003.

Jan 2006 - Year End & China

  • The main potential restriction to China’s growth appears to be insufficient raw materials in the world (based on what I could see). China is currently in 10-year Growth Phase 1 to 2010, when it is expected to accelerate into Phase 2 to 2020 (based on a presentation at China Mining 2004).
  • The top 3 performers by company have been Independence (IGO) up 2,364%, followed by Kingsgate at 1,573% and then Consolidated Minerals up 906% (based on share price appreciations since ERA’s first report less dividends).
  • I remain amazed that there is still a view that “the sky is going to fall” or “this cannot be a super-cycle” or “commodity prices have to fall if not in 2006, then definately in 2007 and if not in 2007, then it has to be 2008”, or “commodity prices are overdue for a correction because they should have turned down at the end of 2004 according to the historic world IP growth curve” or “China has to grind to a halt due to fundamental economic theory” – to anyone who makes these remarks you should ask “when was the last time you visited China ?”. Quite often the replies are either : “never; a long time ago; or I don’t need to go there because it is obvious what has to happen.” To those that haven’t gone, do yourself a favour, take a week off and go (Singapore Airlines return from Sydney is about A$1200) and make your own opinion based on first hand observations, otherwise much greater monies can easily be lost through taking the wrong stance.
  • It has been commented that nickel prices must fall because the nickel laterites have to be developed in order to meet demand, with a new nickel laterite mine required every year to meet demand expectations. But each 40,000tpa to 50,000tpa nickel laterite mine costs at least US$2bn to construct over 3 years or so, and then take up to 8 years to reach full capacity and require maintenance and sustaining capex of US$100m per year. That level of capex requires minimum levels of nickel prices to be viable, and Minara are still not quoting their cash costs.
  • This belief that commodity prices have to fall is the only rationale I can apply to the relatively weak performance of Australian nickel producers such as Mincor and Sally Malay during 2005 as shown in Table 1, which we believe are both capable of exceeding A$1 per share, with Independence capable of being well over $2 per share (a 70% appreciation on $1.18 = A$2.01). Both Consolidated Minerals (CSM) and Titan Resources (TIR) also do not appear to yet be receiving any consideration for their potential nickel production, but that could change over the coming year to December 2006.

Aug 2006 - DnD - IGO

  • McLeay grades are higher than expected (7%Ni in development, 20%Ni in face)
  • McLeay South (beyond the Goldfields extension) may extend SE parallel to (and East of) East Alpha under Lake Lefroy (if it does, it has the potential to significantly enhance IGO’s value).
  • Anglogold stated they are starting a PFS in 07 & then BFS in 08 on Tropicana.
  • This comment is in response to a number of queries we have received in which we rate IGO as an ACCUMULATE (Hold, Buy on weakness), based on our previous reports, a group visit to the mine (mainly McLeay at IGO’s Lightning Nickel during the recent Diggers and Dealers Conference in early August 2006, and the presentation made at Diggers by Anglogold in favour of Tropicana).
  • McLeay is the extension of the Gibb-Victor channel, beyond Victor South. At this stage it is not clear whether it is faulted south of the Goldfields extension (based on the TEM plate boundary, whether it is a faulted extension of Silver Lake (Lunnon, seems too far) or if it is a separate channel that extends southeast parallel to East Alpha (and outside of CSM Ni) as shown in Figures 1a and 1b.

Jan 2007 - Year End & China

  • The construction pace of growth in China appears to be accelerating and is involving bridge building engineering feats and extensive spending on railways & rail networks with US$190bn allocated up to 2010 and more to 2020.
  • It didn’t matter where you went in China, literally everywhere was in major construction in villages, towns, cities, plus new railways & new freeways etc.
  • The main base metal of interest still appears to be nickel (based on INCO and Falconbridge both taken over, & Jinchuan’s offtakes with a number of ASX listeds).
  • I re-iterate a comment I made in our last annual review dated 3 January 2006, namely to anyone that still insists that “commodity prices have to fall”, or “China’s growth has to come to an end”...you should ask them “when was the last time you visited China?”.
  • This comment is based on ERA’s (my) last visit to the China Mining (November) 2006 Conference in Beijing, in which I visiting Golden Tiger’s operations in Western Guangxi and SGX’s Jinfeng operations in Southern Guizhou during the week before the conference, attended the conference and saw a number of blue skies over Beijing including an almost clear sky flight from Guiyang to Beijing, and then visited Shanghai and some friends studying Mandarin at a university in Hangzhou.
  • The disparity that we wrote about in the performance of Australian nickel companies during 2005 and our comment that “we believe both (Mincor and Sally Malay) are capable of exceeding A$1 per share, with Independence capable of being well over $2 per share”, was an understatement as during 2006, both MCR and SMY exceeded and are still more than $2/share, with Independence rising to over $5/share, before dropping back.
  • Both Inco and Falconbridge have been taken over, so comparisons with them cannot be made any more – surprisingly no one has focused on why they were taken over as in why not aluminium, copper or zinc companies. However, Table 1 below reflects a “what if” nickel stayed at US$15/lb (US$33,000/t) since current share prices appear to be indicative of nickel prices of ~US$

Aug 2007 - DnD - SMY, AVO, CSM

Buy SMY & AVO; CSM worth >$5

  • If we had to pick two stocks, they would be our last two reports : SMY & Avoca
  • Preferred buying order for the nickels: 1. Sally Malay, 2. Indep Group, 3. Mincor
  • IGO could produce 1,000tNi above expected or ~10,000tNi in 07/08. Tropicana expect > 20moz (range is 20moz to 50moz over the 350km strike length).
  • MCR’s 50% increase to 900,000tpa treated by 08/09 appears to be >1.0mtpa.
  • CSM’s Gillet worth well above the ~$4m in the IGR (A$70m to A$95m?), Beta Hunt now improving with Vent #, New Ni concentrator at Widgie appears likely.
  • This Comment started out based on the visits we (ERA) took during this years’ Diggers and Dealers August 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel and gold favourites.
  • Our (ERA) current favourites are :
  • Sally Malay : Recent August 1 report, rose ~10% on report release, plenty of upside potential, Deacon : HUGE, maiden dividend, debt-free, hedging basically gone (actually lost $112m in hedging in 06/07 & still made ~$90m NPAT (cashflow would be even higher)).
  • Avoca : Recent August 2 report, rose ~5% on report release, market unfazed by negligible production this year, new Wills supergene discovery, potential new Chalice discovery.
  • Independence Group : Steady production from Long/Victor at probably closer to 10,000tpa Ni (quoted as 9,000tNi for conservatism). Tropicana 20moz to 50moz, other new gold areas.
  • Mincor : Significant increase in production coming and plenty of exploration upside. Thinks it should recoup its Otter Juan acquisition within one year with ~$6m cashflow just for July 07.
  • As for CSM : Wait until the last possible day before accepting, the ideal scenario is that neither offers win as in ERA’s opinion, it should not have embarked on this course of action and could have traded closer to $5/share (due to the manganese market upside). If Pallinghurst looks likely to win, then SELL : if TTY looks likely to win, then BUY.
  • There were numerous visits to choose from at Diggers, from which we visited IGO’s Long/Victor Mine; MCR’s Otter Juan, Carnilya & Miitel; and CSM’s new Gillet discovery and new open-cut mining at Armstrong & 132N. Our comment on IGO includes the presentations made by IGO and AGG mainly on Tropicana at the conference, where estimates ranged up to 20moz and beyond.

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.

Sep 2008 - DnD - SLR, NGF, IGO

Silver Lake (SLR), Norton Goldfields (NGF) & Independence (IGO)

  • Post Diggers last year we wrote “This Comment started out based on the visits we (ERA) took during the Diggers n Dealers Aug 2007 Conference. However, it has been extended following the recent decimation in share prices due to trading on money that did not exist, and requests for our nickel & gold favourites”. That comment applies just as easily for 2008 too, except that this time around the “money that did not exist” has mainly been in different forms of sophisticated shorting.
  • It is often commented that the market likes a story and hates reality, that’s why the old model of the share price rising when a company starts production has gone out of the window. Now companies rise before production and fall when they go into production as reality hits, unless they are still in “story” mode. Our current Australian based and operated favourites are all appear to be debt free, generating cash with cash in the bank, and significant upside potential being for nickel : Panoramic (PAN @ $1.45); in gold : Silver Lake (SLR @ $0.16) and in other (iron ore) : Territory (TTY @ $0.52). – And all of them have PERs in the 2 to 4 x area. (PAN : 194m x $1.45 = $281m, less $130m cash = $151m/$73m = 2.1 x; SLR : 153m x $0.16 = $24m less ~$3m = $21m/$12m = 1.8 x; TTY : 265m x $0.52 = $138m less $1m (check financials when reported) = $137m/$45m = 3.0 x) Our (ERA) current favourites are :
  • Panoramic : Recent August 2008 report, and stacks of upside both at Lanfranchi (due to Deacon) and at Kimberley Nickel due to Savannah. PAN recently reported some more of those thick high grade (double current grade) intersections, indicating further upside potential. Our report had a life of 10 to 15 years at ~15,000tpa - 20,000tpaNi (whereas it could be 15 to 20 years at up to 25,000tpa [which more resembles a portfolio stock]). The NPAT is about $70m per year at prices of A$9.47/lb Ni (US$9/lb and an 0.95US$ exchange rate, currently the nickel price at US$8.3/lb and a 0.81US$ exchange rate equates to 10.25A$/lbNi)
  • Silver Lake : We accept that the share price has fallen to as low as 15c, but how many gold mines are debt-free, treat at ~14g/t (July 2008), encounter 10m @ 6kg/t (6,000g/t in a development drive), have a development face averaging 57g/t, have the capability to double their mill size and could exceed our forecasts of 70,000ozpa by possibly up to 50% more in their first year, potentially generating profits of $1m to $2m per month.
  • Territory : Yes we accept that it lost heaps ~$50m or more last year investing in Monarch etc etc. But at Diggers it was selling its lump at ~A$110/t, fines at A$90/t, say A$100/t on a 50/50 basis. Costs are A$70/t falling to A$60/t (and targeted to go lower), say a margin of A$35/t, which at 2mtpa = $70m less tax = ~$50m NPAT less exploration etc = $40m (and revenues may be US$/t and not A$/t, so the figures could be higher).
  • At Diggers, we also visited Norton Goldfields (NGF) and Independence (IGOs) operations, viz :
  • Norton Goldfields : Being overlooked because of the Paddington history by Pancon. We were surprised by the upside potential seen on the visit (ahead of Diggers) with the old Padd I & II pits to be used as tailings storage (20 years at ~3.5mtpa).
  • Independence Group : Remains a favourite, despite its share price collapse to under A$3/share. Long-Victor and Tropicana could continue as low cost operations until the “cows come home”.

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

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.

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).

Jan 2010 - Year End & China

  • I must admit that even after all this time, the recent falls (mid/late January 2010) in share prices and commodities on the basis of a China slowdown still comes as a surprise – as if China could suddenly grind to a halt. The market has yet to accept that China has a planned vision of where it wants to be and how it is going to get there for the next 20 years. The main beneficiary should be Australia because of its proximity and relatively high grade orebodies. We re-iterate what we have said before, if anyone gives a China view, ask them when was the last time they were there?
  • The market’s behaviour implies that the share prices are going down because China is slowing, but commodity prices appear to be ignoring LME stockpiles & the major producers are struggling to expand as fast as possible to meet demand that has pushed spot prices of iron ore and coal well above their benchmarks. In September 2009, the brokers were forecasting gold to fall and drop to ~US$900/oz in 2010, whereas instead it rose to ~US$1300/oz on physical (an increasingly wealthy growing middle class in China, plus India and the central banks), and currency demand.
  • As it turns out, the 9.5% expected increase in China’s GDP for 2009 (at the time of the China Mining Conference in Tianjin TEDA in October 2009) was in fact ~10.7% (according to the latest statistics [21 Jan 2010]). In fact the last quarter of 2009 may have been at the blisteringly unsustainable pace of 13%pa (the official figure for the first half of 2009 was 7.1%). So it is no surprise that credit is being reined back, to an expected 7.5trnRMB (US$1.1trn at 6.8RMB to 1US$) compared to 2009’s 9.6trnRMB (US$1.4trn). Has the market already forgotten that in early April 2009 it looked like China was heading for a growth rate of < 6% compared to the long-term target rate of 7%pa to 8%pa?
  • April 2009 was actually the turn, when a number of construction sites in a number of cities in China moved to double-shifting and almost overnight, there was an immediate shortage of copper wire and copper piping. [Note : as per our comment last year, China only produces ~15% to 20% of its annual copper requirements, or 0.9mt with 4.5mt imported in 2008]. ERA business wise, we restarted marketing at the Paydirt Gold Conference at the beginning of April and by the end of April 2009, our forward book was back to normal (ie booked about 1 year ahead, [it had been booked up to 2.5years’ ahead], when the crunch hit we lost everything from Sept08 to Dec08 & other spots).
  • We (ERA) did in fact state on ABC TV [7.30 Report on 12 Dec 2008] that we expected the turn to be about Mar/Apr 2009 (while some thought 2nd half 2009 was a possibility, most appeared to be expecting 2010 or 2011). Our estimate was made on the basis of China slowing down ~6 months ahead of the August 2008 Beijing Olympics and then at least 6 months to recover afterwards, allowing for Chinese New Year and China’s new regulations on emissions), whereas timing wise, kick-starting China’s economy appears to have been the main reason for the recovery.

Oct 2010 - DnD - CAH, SLR, MPR

Buy CAH ; Buy SLR ; Spec Buy MPR

  • Our DnD Review is somewhat belated this year, as we completed our report on Focus (FML) first, (which slumped to ~3.8c post Dnd as the market focused on its ~200,000oz in reserves compared to the ~2moz resources), and quite a few of the gold stocks have run / increased significantly since then, spurred on by the Andean takeover.
  • Around Diggers we attended Catalpa’s Edna May mine opening, revisited Silver Lake’s : Daisy East progress underground at Daisy Milano, saw further intersections at Magic and walked over the new Wombola (North Monger) acquisition. We also visited the planned MacPhersons Reward Gold Ltd IPO (which is currently waiting for its ASX code which may perhaps be MPR or MRG) property, and spent 6 days with Focus (FML).
  • Focus Minerals is the subject of a separately released report (16 September 2010) that expected FML’s share price to double from ~5.4c per share, especially when the sensitivity to grade is considered (increase grades by 5%, add 1.4c to FML’s value),
  • Aside from the visits, the standouts at DnD were Silver Lake’s 1000oz (solid) Gold Miner in their booth as shown in Figure 1a, and Sandfire’s copper mineralised drill cores as shown in Figure 1b (showing how realistic their discovery is).

Nov 2010 - Sth American Review

Buy Extorre (XG) & Exeter (XRC)

  • In the two weeks after we emailed our Post DnD Review on 8 October 2010 we visited Argentina and Chile, spending almost a week visiting Mariana (MARL.L, an AIM listed company that expects to list on the TSX in Dec 2010/Jan 2011, & the subject of a separate report), and the following week participating in an ~40 strong analysts visit for what we thought were only the epithermal operations of Extorre (XG.TO) and Exeter (XRA, XRC.TO), which we attended to enhance our knowledge of epithermals. Mariana’s operations are in Argentina’s Patagonia and Chile, as were Exeter’s before it split under a plan of arrangement earlier this year (Mar 2010) into Extorre in Argentina (mostly Patagonia) and Exeter in Chile. The codes in brackets are Reuters codes (we use yahoo finance to freely access such prices, eg : http://finance.yahoo.com/q/cq?d=v1&s=marl.l+xg.to+xra+xrc.to).
  • WELL WHAT A SURPRISE !!. Both Extorre and Exeter appear capable of at least doubling their ~$6 share prices (Extorre based on potentially higher grades [– they are the highest we have ever seen in an epithermal], greater life, and possibly later greater throughput; and Exeter based mostly on market cap comparison, but also the possibility of occasionally better grades, and possibly better recoveries – especially in the oxide).
  • However, they are TSX or AIM listed companies and not listed on the ASX. So how do you buy them if you reside in Australia?. Well you should contact your own brokers. However, if you trade through Taylor Collison (TCL, the broker we are associated with and are a qualified Corporate Authorised Representative of) then : you place the order with your advisor, who can forward the order to the broker TCL are associated with in Canada.
  • That broker then (say) buys the stock and it is placed in a holding account, which is settled between TCL’s bank in Australia and the associate’s bank in Canada. TCL will raise a trade confirmation on your account which you will receive in the usual way (ie via email or post). For example: An order placed for ~$10,000 XG on 26 Oct, was transacted in Canada overnight, with the contract note received on 28 Oct, for settlement by 29 Oct (basically for TCL clients, the order is executed in Canada, and Canadian brokerage incurred, the whole converted into A$, and then Australian brokerage incurred on the converted A$ total, plus the usual GST on the Australian brokerage).
  • All the information in this comment is public. The visit included a number of broker analysts, fund managers, & media/investor groups like Mineweb and the Midas Newsletter (using video recordings and skype links to Reuters), (and a separate London broker led fund manager group, that appeared to try and avoid our group, arriving on mine sites at times like 3pm and 5pm – so they obviously missed the spectacular Andes flyover of Exeter’s Caspiche mine, east of Copiapo in Northern Chile)
  • It was the first time we have visited Argentina and Chile (well we have passed through Santiago on the way to Brazil and back from Peru when visiting Mundo’s operations). Both countries appeared to be relatively well developed (compared to what we have seen of Brazil and Peru) with Santiago apparently little affected by the earthquake earlier this year (as in its spaghetti junctions of freeways appeared to be intact including the ~11km long freeway tunnel that passes under the city).

Feb 2011 - Year End & China

  • Reading our introduction to last years’ comment dated 29 January 2010, little appears to have changed one year later, apart from the fall in share prices occurring earlier in January 2011, viz :
  • “I must admit that even after all this time, the recent falls (mid/late January 2010) in share prices and commodities on the basis of a China slowdown still comes as a surprise – as if China could suddenly grind to a halt. The market has yet to accept that China has a planned vision of where it wants to be and how it is going to get there for the next 20 years. The main beneficiary should be Australia because of its proximity and relatively high grade orebodies. We re-iterate what we have said before, if anyone gives a China view, ask them when was the last time they were there?”
  • In November 2010, after visiting Gryphon’s prospects in Mauritania and Burkina Faso we flew to the China Mining conference in Tianjin, and then saw some friends in Kunming (to get a greater feel for what is going on in China). After all, China is still the engine of growth for the commodity sector.
  • At China Mining, sessions are held covering the different commodities. Originally rare earths were planned to be covered, but then dropped and coal was excluded too. Perhaps China thinks it has or thought it had enough under control (which in the case of coking coal, it may have done as this was well before the QLD floods of January 2011).
  • Although China is trying to find ways of reducing the costs of various ores (possibly it will acquire its own shipping fleet), it felt that due to supply/demand gaps and hence shortages, the pricing pressures remained as scrap quantities reduce and India possibly reduces its exports (for its own domestic consumption) especially for copper (due to the emerging ETFs), and iron ore/steel due to the 3 majors (BHP, RIO & CVRD).
  • What was noticeable this year was the size of the booths at the conference and even Jinchuan manufacturing its own mining equipment as shown in Figure 1a. There is now a significant choice of mining equipment manufactured in China. China is also building self sufficient Circular Economic Parks centred on producing mines such as either coal or oil (there were nodding donkeys on the hills of the model) as shown schematically in Figure 1b. Datong (coal) has already built an operating one.
  • It was stated that China invested $301bn (2trn Yuan) during the 11th 5-year plan (2006 to 2010) to save energy and reduce emissions (hence the sudden slowdown at the end of 2010 in order for companies to try and meet their expected targets). In the 11th plan, more than 70% of coal-fired power stations installed the flue gas desulphurization (FGD) system. Greater reductions and energy savings targets are planned to occur in the current 12th 5-year plan from 2011 to 2015.

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