Tough mining investors move fast

By Peter V O'Brien

Friday 13th February 2004

Battle-hardened share market speculators had no trouble accepting price changes for New Zealand-based mineral (including oil) exploration companies over the past three and six month periods.

They did well, provided volume share trades were sufficient to realise decent dollar returns. The movements are in the table.

Cue Energy Resources and New Zealand Oil & Gas admittedly had product sales but they were minimal in the context of capital employed.

It is worth repeating the perhaps overdone cliché mentioned in The National Business Review during previous discussions of the mineral exploration and "real" mining sector: "why ruin a good mine by putting a hole in the ground?"

A glance at the five companies in the Australian section of the table shows the merit of that view. They produce minerals, oil and gas, but their share prices lagged behind the gains of New Zealand-based exploration groups.

GRD NL was a special case. Its New Zealand currency-denominated share price gains related to movements in the gold price, non-mining activities, an Australian-driven price and buyback related to the imminent float of hived-off Oceana Gold. (OK, Aussies either lack spelling ability or deliberately named the new organisations as spelled.)

Movements in Summit Resources' share price were examples of big percentages gains, despite small changes in terms of cents and speculation based on pre-mining assay results.

A 20% share price decline (from 10c to 8c) between October and February moved to a 66.7% (two-thirds) gain when taken back to August.

Summit's quarterly report for the period ended December 2003 concentrated on drill core assays of its precious and base metals' prospects near Mount Isa in northwest Queensland. The company encountered "low-grade" copper, silver, gold and bismuth mineralisation in the region. It was pursuing assessment of prospects in Isa South.

Summit should abandon continued references in quarterly reports to political-based stirring about uranium prospects in Queensland.

The latest quarterly report said: "These uranium deposits, and the contained resources, are now effectively mothballed, with any future development being dependent on a Queensland government more favourably disposed to uranium mining and processing than the present Labor government."

Give it a rest, Summit directors and executives. You have gone on about this for at least four years. Queensland kept on re-electing its Labor government, last week giving it 63 parliamentary seats from a maximum 89, down three from the previous 66, suggesting companies such as Summit have lost arrogantly assumed political clout.

The hairy end of the framed Queensland pineapple is still painful.

Australian "real" miners faced problems in the past three and six months, particularly in relation to the decline of the US currency, in which traders quote metal prices.

Movements in metal prices on international markets were discussed in NBR on January 30.

Price increases in US dollar terms had to be related to producers' currency relationship with the international prices and the miners' hedging policies.

Hedging eventually runs out, leading to renegotiation. Mineral producers face counteracting issues.

The current US administration's economic strategy involves a weak dollar.

It is misguided, because as long as China links its currency to the US dollar, it will negate benefits for US exports against "cheap" Asian imports.

The result of this year's US presidential election is the other issue. Re-election of George W Bush would see "business as usual."

His re-election is no means certain, despite his reputed (so far) $US120 million "war chest."

A Democrat in the White House would make substantial changes to political and economic policies, international and local. They would affect mineral producers.

Speculators in blue-sky mineral explorers will take their gains, irrespective of geo-politics and international market trends.

Good luck to them.

They have to move fast to avoid reversal of sentiment.

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