Specs that could face project delays

I am what you might call a 'spec lover'. By that I mean its not just about the money. I love tracking down these underloved stocks and investing in them - seeing value before everyone else. It has however dawned on me before that there are certain market-related news that is slow to come out because it is contrary to the vested interests of project sponsors. These examples include:

1. Emerging miners that overstated their capital and operating costs, eg. Gleneagle Gold, View Resources.

2. Emerging miners that overstated their resources, eg. Batavia Mining

3. Emerging miners that overstate the value or utility of reprocessing plant, eg. Oroyo Mining, which found a consultant willing to state that its processing plant was able to refurbished for a very low number. If you want to see the photos of the plant, I can show you.

4. Emerging miners that understate their development lead times, eg. Matilda Minerals, Red 5 Ltd. Matilda took forever, whilst I think Red was caught by surprise

To be fair, there need not be anything dodgy about these disparities in corporate reporting. But I am suspicious because I am a trained cynic and because there is really no process in place by the ASX to protect investors, except in the area of resource calculations, ie. The JORC code. But even so, that is an industry-sponsored initiative, and not an initiative by Australian Stock Exchange (which monitors disclosure), and the over-riding investment regulator - the Australian Securities & Investment Commission (ASIC), which is as useless as piss, and twice as yellow, have no interest or capacity to regulator publicly listed companies. They have no money, and they are only interested in high profile cases. Why? Because thats the way 'big business' wants it, and they are the one's paying the political parties donations. I'd like to know what Rene Rivkin did to the establishment because he was targeted by ASIC. Maybe someone doesn't like Jews or his flamboyance.

So one has to be impressed when a company like Universal Resources (URL) upfront discloses that their plant will take a long time to build because of the delays procuring a SAG (semi-autogenous grinding) mill. In fact the delay is up to 2 years. The implication is that IF you can't buy a 2nd hand one, you need to wait 2 years. I dare say this is because astute mine developers are ordering ahead. It may depend on the size of the grinding unit being sought. But consider the implications:

1. Huge project delay risks for emerging miners - thats alot of the companies I recommend

2. Potential risk with hedging agreements - though I think this is true only for precious metal mine developers using hedging and it is rare to hedge these days

So its important to know whether your project sponsor has secured vital equipment. If they are affected, their share prices can be expected to languish despite the very favourable commodity prices. They will eventually do very well, but you should trade them in the short term, and focus instead on the larger stocks which can expand with brownfields (incremental) capacity expansions that use existing SAG mills, or just stocks that can add to resources, eg. Matrix (MRX.ASX) is a good stock because it can easily add capacity. Why? Heap leach type plants are discontinuous mining processes involving the stacking and leaching of ore on prepared pads. Thus since there are weeks of irrigation, crushed ore could be stockpiled (if not stacked), allowing existing crushing capacity to be better utilised. Alot of gold mines are heap leach operations, so these project types should be favoured. Resolute Gold (RSG.ASX) might be an example.

- Andrew Sheldon www.sheldonthinks.com