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Miners see solid results

By Peter V O'Brien

Friday 8th August 2003

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Local mining and exploration companies enjoyed solid share prices in three cases during the March quarter, including Australia-domiciled GRD, which has goldmining operations at Macraes Flat in Central Otago.

Share price movements for New Zealand companies and a selection of major Australian groups ("real" miners) are in the table.

The Australians are a sample of the Australian Stock Exchange's many operational mining companies. There are also numerous exploration companies but there is little sense in isolating any.

Virtually nothing happens in New Zealand mining stocks from quarter to quarter, apart from GRD obtaining more gold at the Macraes mine and working on its Reefton project, other companies attempting to prove up economic deposits of precious and base metals and New Zealand Oil & Gas (NZOG) producing small amounts of oil.

Most have been at the exploration and proving-up stages for many years, with little but hope to show for their efforts.

Investors therefore speculate when they buy the companies' stock, an exercise that provided good returns from Heritage Gold (from a low base) and NZOG in the past three months.

Summit Resources slipped 20% (also from a low base) as it completed surveys and preparations for a planned drilling programme at its Mt Isa, Queensland, prospects, where it is looking for copper, lead, zinc and gold.

A section of Summit's quarterly report was indicative of the enthusiastic language often used when describing their prospects and programmes. Referring to the Mt Isa programme, the report said: "Summit, with 100% of around 3700 [sq km] of tenements and tenement applications in the Western Succession, has a dominant ground position in this highly prospective mineral province.

"The tenements cover over 400km strike of major structural features and rocks known to host the world-class ore bodies now being mined in areas adjacent to Summit's ground holdings."

Makes one wonder why they bother with surveys and drilling, rather than just digging a hole and shipping the ore, but you have noted the bit about world-class ore bodies being mined in "adjacent" areas. Ore bodies run out somewhere, so there is no guarantee they continue into Summit's prospects.

Established miners and their shareholders have other issues with which to deal, although the "real" mining groups have exploration programmes.

Share prices fluctuate according to prices for raw materials, which are dependent on world economic conditions and resulting industrial production.

Changes to exchange rates also influence returns, and ultimately the share price, of the Australian heavyweights.

Rio Tinto, for example, commented on price and exchange movements in its report for the six months ended June 30.

In passing, it should be noted that a giant international resource group produced an interim report to stock exchanges on July 31, one month (fewer working days) after balance date.

The report said gold prices averaged 16% higher than the same period in 2002, copper prices were 4% higher and aluminium prices were up 2%.

Iron ore price increases of about 9% were agreed with major customers with effect from April and earnings also benefited from increases in diamond prices.

The effect of a weaker US dollar far outweighed the net positive effect from prices. Most metal and ore prices are set in US dollars.

Rio Tinto said the Australian currency was 15% higher against the US in the period, the Canadian dollar increased 10% and the South African rand was up 33%.

The company included a table showing estimated effect on full year earnings of price and exchange sensitivities, assuming each moved in isolation. Since they do not move in isolation, the figures understate the complexity of estimating earnings. They are expressed in US currency.

Copper, +/- 7c1b, $US99 million; gold, +/-$35/oz, 56 million; aluminium, +/-6c/1b, 88 million; $A, +/-US6c, 139 million; $C, +/-US7c, 26 million; South African rand, +/-0.7 rand, 16 million.

Other heavyweight miners would show similar figures, making assessment of potential earnings at any time an involved calculation, even after taking account of currency hedging.

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