Azure Minerals (AZS.ASX) - looking good

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Hi all, I note that Azure Minerals (AZS.ASX) is going crazy at the moment, and for good reason. People are seeing the upside in its high grade project, with strong expectation that it is going to turn its marginal project into a long term sustainable mine, with very lucrative returns. The stock is trading at resistance levels, though I would be inclined to hold on, as I think they have more upside.

I think I first highlighted the potential of this stock back on the 26th Feb 2008 based on their geological exposure. Sadly I have not been following them of late. I focus was their silver potential, which has been less prominent. Nevertheless, the other attraction is that a number of other companies are earning a stake in their projects, so fear not for a capital raising.

They will probably struggle to break 7.5c, so you might want to profits, but why bother when your short term support is likely to be 6c.

Interesting I was thinking to trade AZS today at 6-6.3c this morning, but I was distracted by another stock that caught my interest. Will tell you more after I have assembled my stake. :)

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Andrew Sheldon www.sheldonthinks.com

Trading opportunities - gold & tantalum

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Based on the current chart, it would normally be a good idea for gold investors to sell Red 5 Ltd (RED.ASX), which is currently at resistance, and to enter A1 Minerals (AAM.ASX), which is cashed up after just absorbing an issue. I caution however because the company is testing a large geological intrusive which is lightly mineralised. It does not promise the grades of Anglo American's Bo????gan project up the road, however it could be of significant size. I wonder if this is the intrusive they drilled about 5 years ago?

Anyway, AAM would not surprise me if they offered some positive drilling results to the market, as well. Also there is likely to be some movement in Gippsland (ASX.GIP). It has been finding some buyer support over the last week. There is still some seller at 4.2c if anyone wants 100K odd parcel. I have historically done very well on this stock in the past, so blow me down, I think I have done it again. I recall getting 2 sets of free options before because some people did not take them up, so I was able to get more. Can't remember how that worked. Maybe I was able to exercise a right to get options. It does show how long this company has been sitting on this tantalum project in Egypt. We must remember that they have an interesting copper project in Ethiopia as well, though this project is less advanced.

GIP had a memorandum of understanding with Thyssen, a German trader some time ago. I'm guessing that the agreement has expired. In any case, the strong Asian market and the prospect of purging purchases of Congo tantalum strike me as a good basis for supporting the tantalum market. Based on the following price action, we might conclude that:

1. Shipments from the Congo are irregular because of civil unrest

2. The market is small, thus suffering from significant volatility.

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Andrew Sheldon www.sheldonthinks.com

Comet Ridge Ltd (ASX:COI)

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The coal seam gas industry in Australia is quickly being consolidated as the majors take over the first players in the industry. Shell is the latest, acquiring Arrow Energy. Among the minnows which will eventually be acquired are:

1. Comet Ridge Ltd (ASX:COI) - Comet has rallied recently and has been sold back to a support level of 30c, so its good buying now.

2. Blue Energy Ltd (ASX:BUL): This stock has also rallied, but I would wait for it to pull back to the 20c support before buying this one.

The appeal of natural gas ought to be apparent - its the lifeblood of any country. I however question the commitment of governments to the greenhouse scandal given that I published a book citing the crappy arguments of the people behind this scaremongering. The science really is abysmal for any critically-minded geologists like myself. The appeal of coal seam gas is simply:

1. The certainty of resources - you can have a lot more confidence the gas is there if the coal is there because there is no significant reason for gas content to change across a basin given the breadth of the organic deposition and the mildness of the subsequent deformation. Qld coal is very good coal, and its pretty gassy as well.

2. Infrastructure - There is already a lot of infrastructure in place, but it is going to increase of course. The principal investment will be the LNG facilities on the coast, so the gas can be exported, however also expect some local processing, and even perhaps some industry based on these energy supplies. The appeal of coal seam gas is that it favours energy market competition. Even if the big companies acquire large stakes, there is always some acreage to be developed, and it suits small-scale regional development. This is why I think most of these companies will be acquired.

3. Looming energy crisis - There is a rapidly expanding international need for gas, and few secure countries from which to purchase it. Africa has a lot, but Australia is a far more secure source of supply. Asia has very little gas, and Australia is closest. This augers well for Australia in the long term, as well as these developers, though the LNG infrastructure is unlikely to be available before the crisis I suspect.

4. Takeover targets - These small companies might make particular sense to the Chinese, particularly since it might be hard for them to get 'hard equity' in any northern Australian gas assets. No chance of buying Woodside.

5. Well understood market - The value of coal seam gas is well understood which makes it easier to finance a project. My only concern is the prospect that methane could possibly escape from the seams. The reason why this might occur is because geological strata are not always capped, so I could envisage a reduction in hydrostatic pressure resulting in gas being emitted into the atmosphere. I have no idea if anyone is looking at this; but it is a potential risk for the industry.

6. Market dynamics - I think the smaller companies in the long term will target the domestic market because of lack of access to LNG export capacity. The majors will be looking at export for higher prices. The power generators will be spreading contracts around to maximise the competitive dynamics, so these companies will be acquired when they reach critical levels, but likely before they have a chance to lock their gas sales into low-priced, long term contracts which would reduce the upside for the majors.

See the latest price for Comet Ridge (COI) and Blue Energy (BUL) at Google Finance.

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Andrew Sheldon www.sheldonthinks.com

Benefiting from the next (3rd) oil crisis

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A friend of mine just sent me an promo for a publication suggesting there would be an oil crisis, and oil is going to $US220/barrel before 2011. I tend to think it will reach those levels too, however I suspect its going to be more like 2011-2012 than 'before 2011'.

Eventually US/Britain will be forced to act to stop Iran building nuclear weapons. That will result in missile strikes on nuclear facilities in Iran, which will cause Iran to cease oil shipments. It would probably lead to ground assault on Iran. The government there is very unpopular, so its likely to be a very short-lived battle. Easier than Afghanistan or Iraq.

If you are looking for exposure to this sector, I recommend the coal seam methane (CSM) producers, particularly the emerging companies like ASX.BUL and ASX.COI, and of course gas & gold correlates strongly with oil prices, so you might like AAM (producer), IGR, ADU (emerging).

I would say any such escalation of this issue is likely to be 6-12 months away. The charts probably offer a clue, but I'm not looking at one at the moment. Oil production is the better exposure, however coal seam gas is generally safer exposure. I actually prefer gold exposure on this issue.

The great news about coal seam gas in Qld is that:

1. You can be sure its there because the coal is there and its part of the same process of formation, i.e. coalification, so the gas is there as well, its just finding the optimum conditions for recovery.

2. They are building several LNG facilities in Qld to export the gas

3. Strong population growth in Qld, so more industry and power plants

4. International pricing of exportable product

The bad news for CSM is:

1. The development lead time to build the LNG facilities - its looking unlikely to be completed before the 3rd (arguably 4th) oil crisis, so I'd go with gold rather than these CSM emerging producers. In Australia, you could look at Woodside, since it exports gas, though it would not benefit fully because of long term price contracts. Leveraged exposure to international oil producers is also a possibility through contracts for difference. i.e. CMCMarkets.com, or trade options when the charts suggest. Actually though, for the best exposure, international commodities trading is the best approach. Leverage and no project risk. So we are looking for a chart signal to buy.

2. Pipeline development issues - lead times, economic justifications.

The bad news is that such a crisis is going to undermine global growth. It will be like a rise in interest rates. :) And those politicians thought they could control the market. hehe.

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Andrew Sheldon www.sheldonthinks.com

Gold stocks for entry

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Gold has had a short term rally over the last 2 weeks. Is the commodity going to sustain its momentum? I suggest not. I think it will fall back and consolidate before making a sustained more. In most cases I would be willing to hold on to existing positions. There are cases however where I would not be inclined to do that.

Adamus Resources (ADU.ASX) is a case in point. The stock is currently at a strong point of resistance. This point will eventually be broken. The question on my mind is - how much institutional support is there in this stock and at what price? The company did have an issue to institutions. I question how many shareholders took up the renouncement issue, and whether they are prepared to exercise the stock, or whether the underwriter will dump this stock. Given that the current price is a good margin on the issue price of 40c, I would expect some dumping of the stock in the short term in the 45-50c range, however it will recover.

Northwest Resources (NWR.ASX) is up 20% already today. Interesting to see what announcement is coming there. Very illiquid stock, so might be a bit of trader manipulation, however already there is over 1mil stock traded. Interesting!!

The rest of the gold stocks are looking ok. AMX, PRU are doing well, AAM is at entry given that its currently absorbing an overly-discounted issue. I think there is no rush to get back into the gold stocks.

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Andrew Sheldon www.sheldonthinks.com