The US market has had some positive earnings reports overnight. We need to remember that the US is rebuilding savings in the household sector, and that the corporations are cashed up. The implication is that there is scope for significant business investment, but I wouldn't be expecting a 'flash flood' of economic activity since the corporate sector is depending on consumer or export market action.
The market outlook is more positive elsewhere. This is however a trade opportunity. My focus is on the low-cap stocks in Australia which offer strategic value. Cases in point where I have been buying on weakness:
1. Union Resources (UCL.ASX): This stocks has been very good to me as a trade in the past. Mostly on speculation about its Iranian lead-zinc project; the largest undeveloped project in the world. There is a huge sovereign risk attached to Iran of course, so the company has sought out and developed the Mossburger phosphate deposit in offshore Namibia in a JV with Minemakers Ltd (MAK.ASX). Recently an petroleum engineering services company in Oman (the new oil sheikdom) emerged with a 20% stake in UCL; so there is the prospect of a takeover here. This is of course not a surprise to me. I have long written about the prospects for a takeover of this company. The project is at feasibility stage, and really needs some love from a large company. This company fits the bill. After a capital reconstruction, UCL has a market value of just $13mil for a world-class asset with an equity-based NPV of around $100mil; with upside in Iran. We bought this stock yesterday for $0.15.
These stocks are less compelling because there is no imminent or pressing value to be realised to my knowledge.
3. Clean Seas Tuna (CSS.ASX) - It has a strategic positive developing farmed kingfish and other species in South Australia. This company has some backing, but has struggled to firm up a breeding program. The globe is suffering from over-fishing and stricter controls are destined to push fish prices up. Or might we displace our pallet with cheaper fish in other markets. No doubt there will be a move both ways.
4. Gippsland Ltd (GIP.ASX) is another favourite stock. It is developing a tantalum deposit in Egypt. Not the most stable of places given the political instability. They do however possess a very large tantalum-tin-feldspar resource, and they are capitalised at just $9.75mil. I'm inclined to wait on this one for a better price because there is no clear motive for them to move - except a high tantalum price. Tantalum is not exactly the rarest of commodities. i.e. Australia, South Africa, Canada, Greenland as potential sources of supply. I will buy on weakness as the market is very thin despite its near 1bil issued capital. The fear is actually the prospect of a consolidation. My experience is that consolidations usually undermine a share price.
5. Vital Metals (VML.ASX) is developing a tungsten project in Queensland, as well as a gold project in Africa. China produces 85% of the world's tungsten and is expected to curtail supplies from illegal mines. This creates appeal for tungsten miners in the West. There is a project being backed by Warren Buffet in South Korea (through a Canadian group), plus an Woulf Resources, with its project in Mexico. Vital also has the Kota gold project in Burkina Faso. 2nd round drilling suggests high grade, modest resource.
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