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Miners polish shares ahead of gems

Peter V O'Brien

Friday 7th November 2003

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The sharemarket performance of New Zealand mining and exploration companies over the past six months outdid their mineral extraction achievements.

Share price movements since May are in the table, which includes a selection of major Australian mining companies.

They are not to be taken as intrinsically superior investments to other operators, although buyers of BHP Billiton, Newmont Mining and Rio Tinto this year got better returns than investors with index-weighted portfolios.

GRD is an Australian-based company, but was included in because its mining interests are here ­ goldmining at Macraes Flat in Central Otago.

Cue Energy Resources' 20.4% price increase since August was struck from the low base of 5.4c but would have produced an excellent dollar gain for anyone who invested substantial funds.

Cue gets modest revenue from its interests in the Indonesian SE Globe oilfield, which contributed $US863,717 to total income in the three months ended September 30.

The dollar income was the equivalent of 30,906 barrels of oil. Cue's other interests in Indonesia are at the exploration or proving stages.

Heritage Gold's 27.9% gain was also from a low base. A 1.2c improvement was unlikely to attract a horde of speculators, but was useful for those who were shareholders in August.

The price last week was 44.7% higher than the 3.8c ruling in May. Heritage received promising assays of drill holes at its Karangahake gold project in the Coromandel.

Summit Resources started diamond drilling on Monday at its Mount Isa Queensland prospects where good results were obtained from pre-drilling tests.

The current price reflects renewed interest in the prospects.

GRD produced 50,219oz of gold in the September quarter and was on track for record annual gold sales of more than 170,000oz.

The company hedges forward sales positions, thus fixing future income, but all goldminers' shares benefited from a strong gold price. GRD's interests in mining engineering and waste disposal facilities in Australia performed well in the latest period.

The company's gold interests on the West Coast (Reefton project and Sam's Creek) are progressing slowly, with the former operation, based on the Globe-Progress and Blackwater mines, expected to receive final board decision in the first half of 2004, subject to favourable resolution of resource consents for the Blackwater mine and Department of Conservation access agreement.

Australian mining companies enjoyed a lift in trading conditions arising from stronger international economic growth.

BHP Billiton's report for the three months ended September said its significantly stronger results, before the unfavourable impact of non-cash items, reflected higher prices and sales volumes.

The company's comments about higher turnover indirectly showed the range of its activities: "Turnover rose by 23% to $US4.83 billion, mainly due to higher sales volumes of copper, aluminium, diamonds, iron ore and metallurgical coal and higher prices for copper, nickel, chrome, petroleum products, aluminium, iron ore, hot briquetted iron, energy coal, manganese, diamonds and alumina."

Most of BHP Billiton's sales are denominated is US dollars.

Its decline this year against other major world currencies resulted in substantial price increases (in US dollar terms, not in the trader's currency) for metals.

Prices for high-grade aluminium increased 2.3% between August 4 and October 30, copper 15.1%, lead 20%, tin 11.6%, nickel 29.4% and zinc 9.6%

The three months' movements followed solid gains since the end of 2002.

Aluminium went up 10.3% from December 31 to October 30, copper 29.5%, lead 44.5%, nickel 63.3%, tin 36.9% and zinc 20.1%. The London gold price gained 11.3% in 10 months and silver increased 8.7%.

Many shareholders in mining companies are happy to sit on their shares through good years and bad, relying on the former to outweigh the latter.

Those wanting regular capital gain must move in and out on swings of the price pendulum.

BHP Billiton chairman Don Argus summarised the nature of a resource group when referring to his company's product diversity at the annual meeting on October 24.

"This diversity means that throughout the economic cycle, when some commodities inevitably will be weaker than others, BHP Billiton is able to generate a stable and consistent cash flow, and so avoid the traditional boom and bust cycles of the resources industry."

The mining industry might be a bit short of boom, but is well above bust.

Current share prices reflect the industry's condition.

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