Whilst broader equities might make 10-15% returns this year, they will need to be inflation-adjusted. The stocks to out-perform will be the resources, with probably rises of 60%, and 200-300% for the 'specs' that I target. Yes, people, remember that rally in 2003 (Jul-Dec) - this is the 2nd leg. During that time I anticipated numerous successes, as well as a few failures. The gains were:
1. Qld Coal Co (15c to 45c) > 300%
2. Anvil Mining (11c to 66c) > 600%
3. Red 5 Ltd (8c to 25c) > 300%
4. Equinox Res (9c to 30c) - later consolidated capital
5. Austral Coal (50c to $1.30) > about as blue chip as I go, only because coal is highly capitalised
6. Dragon Mining (6c to 30c) > 500%
There are just too many. But there were some failures. Mostly stocks that didn't perform, lot of which I quickly exited. Others which I had an emotional & somewhat careless attitude towards, have ye to move. It can be difficult. I sat on Anvil Mining for a year before it really started to move. It makes you start discounting the benefits of the stock - and the integrity of the people behind the company. Alot of these people are salespeople, others are true believers.
Since these times, I've been spending alot of time better understanding the 'big picture', to gain a 'bottom-down' perspective of the market to complement my 'bottom-up' understanding of mining stocks, and my knowledge of technical analysis. I do need to spend more time on my trading psychology - to get my exit strategy right. I'm over-trading > a common problem. On that note, my picks for the coming 12 months are:
1. Climax Mining (CMX): I originally entered these at 11-12c, now 13.5c. They are going to 25c. They are developing a gold/copper mine in the Philippines. Its fairly low grade, but its bulk mining, so low-cost. Approvals & title secure, expect announcement on a financial partner. Would not be surprised to see a Chinese company taking equity in the project.
2. Matilda Minerals (MAL): Developing mineral sands producer in WA, it starts mining in Jun'05. Very quick into production because gravity mining heavy sands is so easy, and their grades are exceptional, plus its rich in zircon rather than lower-value ilmenite (titanium oxide 65%Ti). I see them proving up more resources, so they will go from 57c to over $1.
3. View Resources (VRE): They operate a nickel mine in WA, generating $1mil/month cashflow, plus extending the life of an old, fully-equipped gold mine. The share price has suffered because of high contractor charges (up 30%), but they will come down. I would not be surprised to see another acquisition by these guys.
4. Methanol Australia (MEO): This is likely to be the only energy company I recommend. Its a blue-sky mathanol plant proposed in the Timor Sea. They have excellent management, a multi-national for a partner, Sumitomo has financial adviser. Can't see why this project can't fly. I'm expecting positive announcements, which I think will see these 11c shares move to 40-50c. Using an energy feedstock essentially makes this an energy-play, even though methanol need not be used as a fuel.
5. Gleneagle Gold (GLN): This stock has been a disappointment, but the upside has only increased. The company was hit by high contractor charges, delaying mining. I think it has disappointed on its lack of exploration activity as well. But as far as I can see, the potentila remains, and they will be producing in the 2nd half of 2005. But we need a strong gold market. I was fortunate enough to sell at 28c, and have bought back at 17c. Other companies are finding gold resources in the vicinity of their plant. I don't like the management. See what happens when an analyst runs a company. Paralyse by analysis. I can relate to that.
6. Red 5 (RED): I sold out of this one some time ago. Their gold resource has not lived up to expectations as far as grades, but I'm sure it will be an attractive mine since it has delivered on volumes. At these prices it becomes attractive, particularly with Anglogold's financial support and the potential for further high grade gold mineralisation along strike. Remember that Anglogold bought in at 17c, they are now 11.5-12c.
7. Dragon Mining (DRA): They have started mining in Sweden. Its a high grade gold project with scope for repititions once they start exploration. I like this one because Sweden is not a recognised mining country, so its currency doesn't rise with higher gold price. It means that they can expand production with strong revenues before repatriating the revenues back to Aust (strong commodity currency). This is true for Climax as well.
8. Kingsgate Mining (KMN): They are a bigger gold producer in Thailand. Since Thailand is not a recognised commodity producer, they have the same compelling benefits as DRA/CMX, but I know nothing about the mine. Technical/resource risk? Its about as blue-chip as I get.
9. Jaguar Mining (JML): This company is developing an attractive base metals mine in WA. Its orebody is however 300m below the surface, so development is long-winded. It will perform eventually, so watch for a break-out. I'm guessing it will be another 9-12mths before they start production, so keep an eye on them.
10. Base metals: There are a few base metal miners I like, eg. CBH, TTT, but these have moved a little. But good buying on weakness.
11. Oil stocks: I don't know the oil stocks as well, but I like CUE and CPN.
12. Gippsland (GIP): An attractive tantalum play in Egypt. Its currently at a BUY point around 12-13c.
There are many other stocks that are attractive to me.
- Andrew Sheldon www.sheldonthinks.com