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Forget the Kiwi listed miners ­ go straight to Oz

By Peter V O'Brien

Friday 14th February 2003

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Local mining and oil companies maintained their virtual non-event status in the three months ended December.

Only GRD (an Australian company operating here as a goldminer through GRD Macraes at Macraes Flat in Central Otago and developing prospects near Reefton) and NZ Oil & Gas produce anything here, after Normandy NFM acquired Otter Gold Mines last year. Quarterly examinations of mining companies in The National Business Review now include Australian companies in which there are reasonable numbers of New Zealand-based shareholders, whether funds or individuals. Seven such companies are in the table. They are representative only of the many Australian mining/oil/exploration groups with New Zealand investors or speculators but are major operators, even by world standards.

Expression of the share price movements in Australian currency disguises that some New Zealanders benefited from movements in the exchange rate, depending on how they managed their finances. For example, the investment of $NZ10,000 in BHP Billiton on the Australian exchange on November 8 in Australian currency would have bought 921 shares, before costs, at a total outlay of $A8815, ignoring the issue of broken parcels. The 921 shares were worth $A8538 on February 7, an Australian currency loss of $A277, but the movement of the New Zealand dollar meant $NZ10,000 was worth $A9270 on February 7, a gain of 5.16% on the initial $A8815 costs.

Goldminers' share prices gained from the solid rise in the London gold price since mid-2002 in reaction to a possible war with Iraq, invasion of that country, accelerating oil prices and consequent economic fallout. The price hikes seemed to ignore that considerable production is sold at fixed forward prices and hedged.

Australian miners and processors of non-precious metals and oil held their own in share price movement terms against a general decline in the industrial sector in the past three months. The general situation was explained in the preliminary report from Rio Tinto for the year ended December.

Chairman Sir Robert Wilson said the performance of the US and Chinese economies this year would be critical, with little sign of any improvement in Europe and Japan. The Chinese economy was only 12% of the size of the US and was too small to lead the world out of recession.

"However, the same is not true in the mining and metals industries. China already consumes more steel and more copper than does the US. In 2002, China's demand for most commodities rose by 10% or more and shows no sign of slowing. If it continues to grow at anything like its current rate, it will begin to place pressure on the industry to keep up with the level of demand.

"It's difficult to forecast the Chinese economy with confidence and we have to recognise that if there were to be a sudden slowdown there, it could have marked adverse effect on our markets.

"At the global level we remain of the view that economic recovery is going to be a slow process. The influence of China on our market suggests, though, that the mining and metals industries might move ahead of other sectors."

Australian mining companies in the table continued the practice of including "outlook" comments in their quarterly production and exploration reports but, perhaps surprisingly, made no reference to the possible effects of a war on metal production and prices.

International oil prices on February 7 for Brent Futures were $US33.60-70 a barrel, compared with $US23.71-73 on November 8, an increase of 29.4%. Dubai traded at $US31.27-29 (Nov 8, $US23.37-69; a 25.3% gain) and West Texas Intermediate was at $US35.02-08 a barrel (Nov 8, $US25.79-85; plus 36%).

The current situation of miners is the old story; go to Australian companies. New Zealand listed stocks are just hanging on. They are small, need farmouts on most prospects here and overseas, and could take decades to reach the production and profitability of major Australians.

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