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FCL Energy only sparkler in lacklustre miners

Friday 3rd November 2000

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PETER V O'BRIEN doesn't see the ho-hum sector raising much more than a yawn in months to come

Fletcher Energy grabbed most of the attention in a ho-hum mining sector over the past three months.

The stock hit $10.01 when it was thought a deal to sell the Fletcher Challenge division to a combination of Shell-Apache would go through, with Shell getting the Australasian assets and interests in Brunei and Apache the rest.

Fletcher Energy's share price weakened when the Commerce Commission declined approval for the initial proposal. It fell a dollar in the week ended October 19, before recovering to $8.49 at the end of last week, as shown in the table.

The latter price was still a healthy 18.7% above the $7.15 on July 28, the cutoff point for The National Business Review's quarterly review of the sector in August.

Assuming a revised Shell proposal receives Commerce Commission approval, Fletcher Energy shares would be removed from the Stock Exchange, leaving the mining New Zealand Oil & Gas and a few small exploration companies.

Heritage Gold is one of them but the company has diversified its interests into internet and e-commerce-based companies while maintaining mineral exploration activity in New Zealand and Australia.

Summit Resources' quarterly report refers to the assessment of "numerous projects" and business proposals in mining, technology, e-commerce and production but at the end of October no definitive proposals had been concluded.

Summit said it would continue to pursue appropriate opportunities which would provide a positive cashflow or growth in shareholders funds.

It recognised successful exploration in a base metals project at Isa North, Queensland, in which it had a 50% interest, would most likely underpin the company's near-term future and provide the best leverage for shareholders.

Summit had another swipe at the Queensland government's uranium mining policy which stopped progress on the company's development of its Valhalla, Queensland uranium project.

The company said a general election was due in Queensland before May 2001. There was potential for a change of government from Labor to a National-Liberal coalition and a change of the mines minister or the member from Mt Isa.

"Any one of these outcomes could then see the project again gaining the support of the local member and the Queensland government."

Summit said there would be a restoration of the substantial resource's value to shareholders should that occur.

Goldminers Gold & Resource Developments and Otter Gold Mines had a reasonable performance in the September quarter but the former company said the deterioration of the New Zealand dollar adversely affected profit.

Gold & Resource had a $US23.5 million debt facility to 2004 and if the New Zealand dollar exchange rate continued to the end of the year the company's $A25 million profit forecast would not be met.

Otter had a 2:5 share issue 39c a share which closed last Friday.

Delays in commissioning increased production at the Martha Hill gold and silver mine on Coromandel Peninsular, an exceptionally wet season at the Northern Territory Tanami gold mine, and treatment plant construction deficiencies at the Beaconsfield mine in Tasmania caused a shortfall in production and cashflow, requiring the first capital raising since 1987.

The London gold price has fallen to its lowest level in two years but the two miners operating in New Zealand have hedged positions in deferred and forward contracts and put and call options.

Gold and Resource completed the 2000 life of mine (LOM) update for its Macraes mine in Central Otago during the September quarter, with the estimated net present value of future project cash flows, after repayment of the $US23.5 million debt, shown to be more than $A300 million.

The amount has increased 36% since 1999 and 99% since 1998. Strong growth in the project's value has flowed from the sharp focus previous LOMs brought to value management in the company.

Project life was increased to the end of 2011, with total gold production over that period estimated to be more than 2.05 million ounces.

It seems unlikely there will be much upward movement in share prices in the mining sector for the rest of the year, with the possible exception of Fletcher Challenge Energy, assuming the revised Shell proposal gets regulatory approval.

MINING STOCK SHARE PRICES (c)
Company29.10.99  4.2.00  28.4.00  28.7.00  29.10.00  
Cue10.812.48.56.94.6
FCL Energy455426475715849
Heritage61888.16.1
Gold & Resource115929096111
NZ Oil & Gas4263252828
Otter7974615940
Summit
* Adjusted for 2:5 issue
10.913.3119.57
London gold
($US/oz)299.10293.65275.05279.85265.45
2000 high: $US313.00; low: $US265.45


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