Union Resources (UCL.ASX) - making a move

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A few weeks ago we bought Union Resources (UCL.ASX) at 0.5c and today they have not disappointed, up 60% this morning. They peaked at 0.8c this morning, and appear certain to test 0.9c by the close of the day. I actually expect this stock to break resistance at 0.9c, and move higher later in the week. Here is why.

We mentioned in our last post on Union Resources that the company has a JV with Minemakers in an offshore Namibian phosphate project. We would not be surprised to see Minemakers make a move on their JV partner because:

1. They have $34mil in cash, Union Resources have little

2. They have a dog phosphate project in Qld, and really need this Namibian project

3. Minemakers has just listed in Canada, so they seem to be attracting a lot of interest because of that.

Personally, I think there is a bit of manipulation going on prior to a takeover of Union Resources.

Of course, you don't need to listen to me, look at the stock. I'm not buying any....I got mine at 0.5c. This JV is going to be consolidated. I wouldn't be surprised if we see a move on Minemakers as well. Perhaps a likely candidate is Incitec Pivot. The fertiliser business is ripe for consolidation, as its already tightly controlled....but night tight enough to gain market power. Those pesky Moroccans have no idea about how to extort high prices from the market. Someone is going to come in and 'do a Rio-tro'. You can watch the price action at Google Finance.

Minemakers australian project is 1200km from the coast by rail, the Namibian project (MAK/UCL partnership) is on the coast. Its unconsolidated sands, using the same dredging technology to extract the phosphates that diamond mining uses. You can even lease the equipment. The large resource will justify a large plant on the coast. A major investor is likely. Where is the World Bank when you need them? Well last time I looked they were in the Far East of Russia.....helping Aricom raise $700mil.

When one thinks of Russia one is inclined to think of bad infrastructure, isolation and cold climates. The reality however is that parts of Russia are surprisingly close to China. What has caught my attention is the development of iron ore resources in the Far East of Russia by AIM-listed Aricom or ‘Anglo-Russian Industrial COMmodities’ [AIM:TIO]. It was spun off a Russian gold producer and explorer Peter Hambro Mining [AIM:POG] in Dec-2003. At the time it had one major asset, a 74% share in the Kuranakh ilmenite and titanomagnetite deposit, and a remit to acquire, develop and operate non-precious metal assets in Russia. Today however it controls 4 major deposits:[i]

Being an analyst/researcher, one is inclined to explore...go off on tangents if you like. In the process of researching about another one of my favourite stocks, I came across this company, Aricom. Relax, the stock is probably fully priced now...let's move onto bigger and better things. My point is that such projects really can take off. You just need to identify them.

Interestingly, Aricom is developing a titanomagnetite resource in the Far East of Russia to supply the northern Chinese steel mills. The Rio trio has got the Chinese throwing money at everything....but we cannot forget that there are other countries in the world which need steel. Everyone is so 'China' focused.

This is why I like MGK....because it is a company with another world-class resource just waiting for an integrated strategy to take it forward. The Chinese know now they cannot trust the Australian government to change the rules, so they will be looking outside Australia to diversify. Thanks Gillard/Rudd! Anyway, it suits me. I just hate to see a good country keep down. More importantly there is nothing more dangerous than politicians with no money sense throwing your money around. Just think - politicians with no financial literacy throwing 28% of GDP around with bogus accountability. They wouldn't allow it to happen in the funds management industry....well ok, I guess they do....but they do pretend to regulate....but they don't even accept that they should be held to a higher standard.

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[i] Aricom’s iron ore projects, International Finance Corp, website, 27^th May 2008.

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Andrew Sheldon www.sheldonthinks.com

Market regulation sux - ASIC top of the list

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It comes as no surprise that the Managing Director of A1 Minerals has resigned. This company is going backwards at the moment. It has broken its 15c support, and is now down to 12c support. There will be questions about why. I think it is the same reason as usual - the same problem which befalls many small gold stocks....nuggetty gold and the mining executives who trade these projects knowing full well their issues. Its amazing how a bad project can be turned into a 'diamond' with a bit of creative accounting. All this goes unregulated by ASIC because it has no skills. Mindless, rule-ridden bureaucrats who think they have an education because they went to university...and studied arts no less.

The problem of course is specifically with vein and shear-zone style gold deposits. Perhaps others as well, but I think you can have a lot of confidence in porphyry-copper/gold/Mo style gold deposits because the mineralisation is so pervasively spread throughout micro-veinlets in the rock.

This problem is huge in the mining industry. Of course is does not help that many mining executive have a dubious ethic, that the government does not regulate, that we are in a mining boom, and that people are regulated by so many silly rules, they might repute all rules as nonsense. Shareholders have a right to effective disclosure....they are not getting it, particularly at the small-end of the market, which is like the wild west.

For those who bought at 15c support, there is the prospect that AAM will go out of business. It is hard to believe that there is no gold, but the grade might be 1.5g/t rather than 4g/t. Who can say whether its a 'nuggetty' effect, or whether its manipulation of data with geostatistical modelling. Maybe it was just financial mismanagement. There are people in the industry who say nothing. It is all a 'game of friends' in WA.

I'm been to conferences where people will tell you that 'so and so' company's project has no credibility. The reason being they know people who have taken a look at it, and rebuffed it, whilst the opportunists 'mine the market' for money.

The industry is full of rationalisation and there is no critical insights coming to the market from people who know to stop this practice. As an analyst who can only go on reports (because I don't perform site visits or hang out in WA pubs), what can you do but draw attention to the issue. ASIC has to change the way it regulates. People will lose confidence in smaller stocks, which means there will be no new companies being formed in Australia, and investment will go offshore. Gillard's tax is just one issue.

I am recommending stocks which are undervalued...not because they are good...but because disclosure is so bad you cannot know the difference. I think there needs to be a role for analysts in managing the disclosure of these countries. I suggest the way to manage this issue is for the ASIC to pay a market analyst $5000 a year to prepare quarterly analytical reports on specific stocks. Based on critiquing of his work, responsibility might pass to another analyst. This approach would see some analysts dominate certain industries, it would force others to critique them to improve the reputation of their brokerage, and investors would have informed debate and analysis from brokers and the companies.

At the moment we have brokers collecting fees from shareholders/companies. The worse the company the higher the fee. I am reminded of Australian Magnesium Corp. I was working for a broker at the time. My analysis showed it was a dog, and the major brokers supported it because they wanted the 'very attractive' 7% commission offered by the company. It went broke.

Brokers are often corrupt too I think. There was suspicious activities at the broker I worked for. The MD of the company employed a hooker from the 'men's club' across the road as a secretary. I think it was because you can trust a hooker to keep secrets. Daily he would need to explain to her how to use excel and word, yet she was paid as much as me (an analyst). Go figure! Her boyfriend was also a broker.

Brokers are salesmen, they are not people with integrity. So long as this country, any country, is regulated by government agencies, you will get no justice, no accountability, which means people being rewarded for deceit. Compulsory super? Don't give up control of your money.

Sorry to those who lost money from my information. I'm in the same boat. Get angry. I think you are wasting your time complaining to your local MP. I would be inclined to vote for smaller government, i.e. LIbertarian based Liberal Democratic Party....not because they are people of integrity, but because there would some competition in the short term. I would also talk to your friends, and get them mad. Organise like business and unions have done before you. Make ideas count for something. There are too many self-serving dikks in the world.

The JORC code was supposed to restore credibility to the international mining industry. It has failed to do that with respect to gold reserves. It is probably adequate for other metals.

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Andrew Sheldon www.sheldonthinks.com

AAM - good buying at 15.5c

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Anyone want to enter AAM.ASX. Once again they are back at that 15c support level. There is 1mil buying at 15c, so you might have to go 15.5c to buy some. I hope there is an underwriter because the issue is at 18c, which makes it hard to have an issue if there are no buyers. I suspect there must be some institution prepared to carry the stock given the solid prices for gold.

As we speak you can buy them for 15.5c. :)

Apparently the reason for the fall is the loss of confidence arising from the extension of the closure date for the issue. Another bumbling mistake by the MD of the company. I guess one invests in the hope that he will be replaced. Must be a lot of upside if he is. He went into the market without an underwriter.

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Andrew Sheldon www.sheldonthinks.com

MIL Resources (MGK.ASX) - cash flows look good

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I am really quite optimistic about MIL Resources. I place it up there with some of my other picks like (in order): Aquarius Platinum, Anvil Mining, Minotaur Resources, Qld Gas Company. I'm so struck by this company I have just produced a cashflow statement in order to get some idea of what I think they will be worth. I have made some assumptions:

1. Concentrate price of $US75/tonne

2. Exchange rate of $0.90 to US

3. The Chinese(?) partner pays up $20mil for 40% equity, and this is sufficient to finance the feasibility study and ore reserve definition

4. I make no inclusions for the gold projects, which have their own merits, but also their short term burdens. They too will be funded by a partner I think. Newmont or others??

5. Using $300mil capex, their project burden would be $150, so $30mil equity, so I allowed for a capital raising of $30mil at $0.30. Mind you I made no allowance for the 60mil listed opts. They will have some impact, so discount 20% off the forecast share price.

So how certain am I of this stock? Well I bought Minotaur Resources before they even put a drill hole in the ground. I was right about that one. The other stocks were very advanced. MIL Resources is not so advanced, but I think the prospect of a major Chinese partner is going to start the investment. Aeromagnetic surveys ought to be able to provide a clue to the concentration of the ore. And I have not even discussed the gold projects, which are looking good. Geez, at $8mil, being listed is worth $5mil, they have $3mil in cash. Where is the project value. I know this is recession, but not to the Chinese and Indians. This is their 'Industrial Revolution', and we get to have a front row seat. But you really have to buy a ticket.

Now, I might add that I bought Aquarius Platinum and Anvil Mining too early...as a geologist/analyst I tend to see the value 1-2 years before the market....and I get very excited. So I would not invest the house just yet, but you ought to be accumulating a stake.

Feel free to look over my cashflow statement, it was a rush job!

Update: Please be advised that I am not happy with my analysis of this stock. The next night I realised that I had not allowed for the 50% project dilution I envisaged. i.e. The project valuation is not $2, its $1 for this reason. The likely development path is more complex than I expected. The ore market and strategic issues are big. I am therefore developing a more thorough analysis for this stock. My concern centers on the availability of similar low-grade titanomagnetite ores in Sichuan province, China, when whether they are likely to make it to other steelmaking areas. I don't think its a concern because the growth in steel demand is huge, and Sichuan is already importing about 7Mtpa of iron ore, compared to over 500Mtpa for China (from Australia and Australia mainly). Watch for an updated analysis. Basically my previous analysis displays my ignorance on this type of ore, this type of steelmaking, as well as the Chinese iron ore market. All of this is being resolved as we speak.

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Andrew Sheldon www.sheldonthinks.com

MIL Resources (MGK.ASX) - looking good

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MIL Resources continues to put out gratifying news about its Amazon Bay titano-magnetite (titanium & iron ore) deposit in PNG, as well as its nearby gold project. This company is really in a very good position. Of course the stock will be even more compelling if Labor wins the next election. In the interests of freedom, I would prefer a libertarian government, but since the majority of you are inclined to shoot yourselves in the foot, why not a kinder liberal tyranny than the Labor collectivist revolution. Personally I'd prefer more freedom to making more money. But for some of your non-intellectuals, you might be overwhelmed by the short term bribe of a government 'super' extortion.

You can download the lasted reports on this stock from the MIL Resources website. The company did not respond to my email raising the prospect of using a deepwater port in the Philippines as a transshipment facility. Clearly this is because:

1. They see China as the principle growth market

2. They anticipate development of a smaller 2.5Mtpa mine, not a larger capacity operation I am implying

3. They anticipate a Chinese investor to fund project ore resource delineation, though I also hold out a hope for a Japanese partner (Kawasaki Steel Corp), even if as a minor partner, so they can look at sintering options. I am not a metallurgist, so I don't know whether sintering offers an opportunity to recover titanium. I suspect not because sintering merely welds iron particles together, but it will allow blending to reduce the titanium grade.

4. They did not address the issues raised in my email - clearly because Downer EDI engineers have not had an opportunity to cost the proposal, if they are even looking at it. I did not send it as a client/consultant, but rather as a shareholder wanting to realise full value from my investment. This proposal would change the capital and operating cost & revenue dynamics for the project. Strategically it also means more partners.

There is additional news in terms of project costs. It seems that cash operating costs for the project will be about $30/tonne, and $25/tonne for capital. I think their cost of capital is too high, say $20/tonne. There is of course the project of capital costs coming down if my proposal is realistic. I understand WA miners have cash operating and capital costs of around $60/tonne, but I am not certain about that. I need to do more research. They benefit from established infrastructure, MIL benefits from proximity to the cost. The implication is that adding incremental capacity to MIL Resources will mean much greater upside.

The other appealing news is that the company has undertaken some sampling on its gold project. This appears to be trench sampling, which should give a good idea about the calibre of this project to offer potential as a gold mine. We will need however to await drilling to get a better idea. Though with a long strike extent, it will take some time to know the final result. The good news is that the proximity of this project to the iron ore, and the location of the New Britain projects (on islands north of PNG), mean that all their projects benefit from favourable geography, i.e. access to infrastructure, and otherwise the ease of barging in much needed supplies. There is even the prospect of barging ore to others processing plants, since these are islands. This is of course too early to say. These New Britain projects sit a long a convergent plate boundary, and there is the prospect of repetitions of large gold resources found along strike, on other islands.

Lastly, the company has been very conservative in its use of cash. The company has only spent down $0.5mil from $3.3mil to $2.8mil, so there is the prospect of a deferred capital raising. Any funding by a Chinese partner for Amazon Bay is likely to be restricted to the project. I would not be surprised if they require an equity investment...though this might simply be a direct project equity. I would expect a Chinese partner to be required to spend $15-20mil in order to prove up the resource and to fund a feasibility study, thereafter both parties have to contribute to project funding. I will in my next email prepare a financial valuation for this company based on my expectations for this project.

MIL Resources is shaping up as an incredibly successful company - with huge upside in a number of projects. Some of you will wait until I am proven right. The problem with this strategy is that the stock might triple when they announce a Chinese partner. The best time to buy is when they are trading off lows - like now.

I might add that our fascist government has scared the Chinese and other investors. There are about 60 small exploration companies in Australia for iron ore, and another 40 coal project developers who would have liked foreign investment. We need to understand the huge Japanese investments made in Australia in the 1960s and 1970s. China is 15x the population, and is growing at 8-10x - faster than Japan. Expect it to be a lot more worried about security of supply than Japan. And I have not even mentioned India, which is growing slightly slower. India actually has good quality iron ore, but its coal is crap, and there will probably be security of supply issues there anyway, so we will likely find a market for iron ore there. A Labor government is scaring investors, which is good for MIL Resources PNG project. Even if a Liberal government drops the tax, Labor has done huge damage to Australia's reputation. They will be investing with a 20-year project outlook. So this is very good for MIL Resources. There is no other iron ore provinces in the Asia-Pacific Region really. China has crap iron ore which is causing environmental issues. Indonesia and PNG have these beach magnetite sands, so does NZ, but all these countries have no deepwater ports. Australia has may deepwater ports, but it has a Labor government, and its iron ore is 400km inland. South Australian iron ore is appealing too, but still - Labor government risk.

I have since been doing some research on WA miners - the Aurox Balla Balla project is 110km from a deepwater port, so clearly it is in a good position. Unfortunately it suffers from the Resource Rent Tax. I am assuming they will be taxed for their iron content, but maybe they will get a reprieve from a Labor government. It has a low strip ratio, but it still has to crush the ore. Reed Resources has the misfortune of being inland WA, near Cue, so it has a rail disadvantage.

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Andrew Sheldon www.sheldonthinks.com

MIL Resources (MGK.ASX) - better buying

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Over the last 5-6 months I have watched MIL Resources (MGK.ASX), the stock has gone sideways. In that time the company just keeps getting better. The company is on the verge of releasing its feasibility study for the Amazon Bay vanadium-titanomagnetite (Va-Ti-Fe) deposit. I have talked about this deposit already. You might ask - Isn't there enough ASX companies developing iron resources in the world? I could not agree more...the problem is that most of them have projects in "Gillard country", and thus they are all under threat of 'partial nationalisation'. Well, there is no keeping a good capitalist down. Bad news for Australia is good news for PNG, because MIL Res has a 90% share of the Amazon Bay deposit, which has a number of advantages over those Aussie projects:

1. It is (so far) free of the resource tax issues effecting Australia

2. It is free, unconsolidated sands, so no excavation is required, just low-cost dredging. Recent announcements suggest there will need to be a grind-phase to beneficiate the ore.

3. The resource is on the coast, so no expensive rail haul is required

4. A market study by CRU has highlighted a market of 17Mtpa in China for 'Titano-Magnetite Iron Ore'

5. Further metallurgical testwork could improve the concentration of the Amazon Bay ironsands product. Preliminary quantitative mineralogical analysis suggests a “best possible concentrate” of 54% Fe, 1.05% V205, 13% Ti02, 4.8% Si02 and 1.2% Al203, which is a specialised product. Laboratory work has focused on meeting these targets and in particular lowering the titania grades, which would give their product broader market appeal.

6. Large resource of 2-4 billion tonnes expected based on preliminary aerial surveys and sampling.

7. The potentially far lower capital and operating cost of the project. The reason is that there is no need for an expensive rail loader, rail line, locomotives, no expensive port. For the operating costs, minimal grinding, cheap processing. Engineering consultant, Downer EDI Mining –Mineral Technologies Pty Ltd estimate that the total capital cost of A$300-4600 million with a most likely cost around A$415 million. The breadth of the capital cost implies a larger scale of development with downstream processing. The 'most likely operating costs are estimated around $A30 per tonne of concentrate if electro-magnetic beneficiation and reverse flotation is required, otherwise as little as A$20/t product. I understand WA miners have operating costs of $A50-60/tonne, and they are investing billions.

8. The company proposes production of a high grade, vanadium-bearing, titano-magnetite concentrate at a production rate of 2.5 million tonnes per annum.

9. The plant and infrastructure is designed on a modular basis that can be easily expanded.

This is exciting news in itself, however I have however outlined a strategy in an email to MIL Resources two weeks ago, suggesting a higher value approach. The approach involves either:

1. Removing titanium - if that is a plausible by-product, or a lower Ti-grade product

2. Blending the ore with WA-based iron ore projects at a transhipment facility to reduce grades in the southern Philippines. Blending and sintering would increase the delivered cost to customers, however it would also increase the value, and give the company access to global markets and a capesize terminal at Cagayan de Oro. This option is of course contingent upon the support of Philippine Sinter Corp (50% owned by steelmaker Kawasaki Steel Corp)...whom would make a nice partner. The facility will allow MIL Resources to blend out (dilute) the undesirable titanium levels in the mine concentrate. The facility could be used to sinter the ore, which has already been subjected to grinding to liberate the ore. This culminates in a lower value 'fines' product.

2. Produce a specialised high Ti-magnetite concentrate for China - a 17Mtpa market.

The sinter facility has deepwater berths able to load capesize (180,000dwt) vessels, so MIL Resources will be able to take its product from self-loading 50,000-70,000dwt ships from the mine site, and discharge an upgraded sinter iron ore in larger capesize (180,000dwt) ships which can go anywhere in the world. The sintering and blending will offset the transhipping cost. Costs would be further reduced if they are able to use dedicated vessels. There is of course a lot of idle speculation...so we will have to watch and wait. Being a profitable investor however demands anticipating the future....particularly where management is generally not always good, disclosure generally bad. But I guess when there are shareholders like myself anticipating future project trends, maybe it scares executives intent on securing every possible advantage. Well, does it not behoove them to be ahead of the game. They of course ought to have secured the exploration rights to all the plausible iron ore resources in PNG.

The Amazon Bay project ought to appeal to a few iron ore consumers like Kawasaki Steel (half owner of Philippine Sinter Corp), or Andrew Forrest of Fortescue Metals, who might like to diversify outside of Australia given that his assets are essentially being partially nationalised....Well not nationalised but enslaved in the subtle ways that fascists do...the effect is the same. Mind you he could turn MIL Resources into a political side-show, so perhaps a consumer is better.

Amazon Bay ought to be marketable when compared to the publicly reported concentrate grades of Aurox’s Balla Balla deposit of 44.7% Fe; 0.66% V205 and 13.8% Ti02 from and Reed Resources’ Barrambie project of 49% Fe; 0.82% V205 and 16.7% Ti02.

Engineering Studies

The mining process involves several steps:

1. Mine operations/wet plant. Mining by two bucket wheel dredges, each at a nominal rate of 1300 tonnes per hour, wet plant essentially comprises two parallel, four stage circuits of spiral concentrators. Dredging is the cheapest form of mining, so operating costs will be very low, and the dredge can even be leased to reduce capital costs.

2. Beneficiation Plant. Comprising magnetic, electro-magnetic/reverse flotation and grinding circuits. This stage is uncertain, but these processes are offset by savings on crushing, rail haulage at other iron ore mining operations. Using a course dry grinding, titania grades as low as 19% have (so far) been achieved. Finer, wet grinding/wet separation is expected to produce substantial improvement; as well as reducing gangue minerals.

3. Port/Stockpiling. The final product is thickened, prior to stockpiling. A wharf is designed to handle handysize ships. This is cheap infrastructure.

4. Other costs includes earthworks, offices, accommodation, roads, power and fuel unloading and storage.

This is not the whole story with MIL Resources - the company has a 50% interest in Titan Metals Limited – which has a portfolio of EL’s and ELAs in PNG prospective for gold, copper, molybdenum and nickel. Current focus is on the Poi gold copper prospect which holds a well defined gold copper mineralized syenite ridge with alluvial gold draining the intrusive system. Geophysical modeling has defined an extensive radiometric anomaly striking over 11km long and 1.5km wide coincident with cross-cutting radiometric structures and magnetic anomalies. This setting is considered to be a favourable host to gold copper mineralized systems. Expect some trenching results from this project in soming months, to be followed up by drilling. The company has also acquired appealing gold projects in the volcanic islands north of PNG. e.g. New Britain.

MIL Resources has 256,677,240 shares on issue, plus 60,329,111 listed options expiring 31/05/2012 with 10c to pay. They have a handy cash balance as at 30th June of $3.3 million. Yet the market capitalisation is just $A8.7 million. Go figure! For a project with the potential to undercut most iron ore production on a capital & operating cost basis.

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Andrew Sheldon www.sheldonthinks.com

Union Resources (UCL.ASX) - is phosphate getting sexy?

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You would think that in a recession there has to be demand for food right? True enough, and the global population is rising so demand for food must be rising. How to get more food from a fixed quantity of land? Well its not as hard as you think for several reasons:

1. Clear more forests - Its happening in Africa, Brazil and Indonesia, but it is becoming more difficult in the West. In Asia, illegal logging is the main culprit.

2. Improve land utilisation - drive around the Philippines - its a country which poorly utilises land. Most landowners seem to be speculators living in the city. Asset rich, and most often income poor, unless they are working for some foreign company.

3. Increase land area under irrigation: Hydro schemes are of course good for regulating runoff to avoid floods, it greatly increases the number and productivity, and reliability of farm output.

4. Increase fertiliser usage - Fertiliser is important to replace the critical nutrients depleted from intensive farming. The more food grown in the third world, the greater the need for nutrients, and thus fertilisers.

You guessed it! I am suggesting an investment in fertiliser feedstocks. Why? There are several reasons.

1. The industry is ripe for global consolidation

2. There are some great project investments around

3. Large companies love big projects

Firstly there are different types of fertiliser, and I can't claim to have any knowledge on the supply and demand for each type, however we can understand that certain soils will have a requirement for certain types of nutrients. Based on my research, tropical soils are generally deficient in phosphorus, potassium, calcium, and magnesium, but rich in aluminum and iron oxides. There is therefore a growing market for potash, phosphate and nitrogen-based fertilisers. The shift to a meat-based diet can only elevate the demand for fertilisers since that requires even more pasture or greater productivity, otherwise food prices have to increase, biofuels have to be displaced, which augers well for fertiliser producers who can grab a greater share of the commodity price premium. At the end of the product chain is the 'rock' producer, i.e. The producers of potash and phosphate rock.

There is a shortage of nutrients in soils for a number of reasons. In the tropics they are leached out of the acidic soils. In other areas, there are natural deficits depending on rock type and intensity farming techniques. I was surprised to find out that even the largest food producers like Australia, Canada and Brazil have a shortage of raw material for making fertilisers. Most raw feedstock is located in Morocco and China, however Morocco dominates exports, with less coming from the Middle East and other countries.

My interest in this industry was captured by a Macquarie Equities recommendation for Incitec Pivot, a fertiliser producer. Fertiliser prices have tanked in the wake of the recession, though clearly they see come upside in the fertiliser and/or explosives market. Notwithstanding their recommendation, I have always been fond of the 'spec' with global ambitions. I was reminded of a stock which I recommended about a year ago - Union Resources (UCL). At the time it had acquired a 50% interest in an offshore Namibian phosphate project. It has a 2 billion tonne resource offshore grading 18%Ph, and it can be easily upgraded to <26%ph.

Compare this project with Minemakers Ltd (ASX:MAK) Waranah phosphate project in the Northern Territory. It is located 200km from Tennant Creek, then there is a 1100km rail haul to the coast. The cost to build a rail line out here would be prohibitive, particularly as there is already a rail link from Mt Isa to Townsville. Does the immediate vicinity need another port link? It is a large tonnage resource, but it also has overburden to remove. The idea that they are going to build a 3Mtpa mine here is laughable, and it gets even funnier when they talk up a downstream beneficiation plant in the middle of nowhere. They would have to build a town. The company in its presentations says the infrastructure is great...and it is...but the distances are prohibitive. Its not going to happen, and the proposed Resource Rent Tax is an extra problem, as it raises a sovereign risk. Today's announcement that Minemakers is seeking Asian finance for this project is therefore surprising. I think it looks like ramping of the stock, which rose by 23% today. You might ask why. I have a clue.

Minemakers has a 14% stake in Union Resources though its takeover last year of Bonaparte Mining. Bonaparte, and now Minemakers, has a 43% stake in the offshore Namibia Sandpiper phosphate deposit we previously discussed. Might we expect that Minemakers is trying to raise its stock price prior to a script-based takeover of Union Resources. I have been looking to buy UCL for 0.4c, but because of the prospect of a takeover by Minemakers, I have acquired a stake at 0.5c. An consolidation of their respective project interests is understandable. Minemakers has some $34mil in cash, whereas Union (UCL.ASX) has very little.

I think this industry could get very exciting in future as I expect some company like Incitec Pivot will make a move on Minemakers (after they take UCL). Fertiliser is one of those strategic resources because it is concentrated in a few countries - both potash and phosphate rock. I just like the far superior economic potential of a project in offshore Namibia. That project once developed will sit at the low end of the global phosphate mine cost curve, able to compete with the Moroccans, who I presume are also close to the coast. Moroccan fertiliser makes its way around the world, as I think Namibia's will.

Union Resources (UCL.ASX) is an interesting stock for several reasons. It also holds a stake in the Mehdiabad Zinc-Lead-Silver project in Iran, the largest undeveloped zinc-lead project in the world. The project has been nationalised, which explains the decline in UCL stock, but if revolution or a coup is achieved in Iran in the next 1-3 years as the hated Iranian regime is ousted, there is the prospect of UCL reclaiming its 40% stake in this project; if not its exploratory funds through export insurance. So the company has enormous upside from two projects. The stock has 1.9 billion shares on issue at 0.5cents, capitalised at $9.4 million.

Minemakers has 108mil stock according to Google Finance (check these numbers as they look low..maybe some listed in Canada or Europe) at 29c. They have $34mil in cash. Best still - all of UCL's projects are outside of the jurisdiction of the fascists in Canberra. At least when the fascists in Iran nationalise your assets they don't pretend to do it for your interests.

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Andrew Sheldon www.sheldonthinks.com

Coal seam gas industry suspicions overstated

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There seems to be people in the industry who are playing down the potential of the coal seam gas industry. I would suggest these fears really highlight a lack of understanding of the industry. Consider the following:

1. LNG capacity: Of course not all those LNG projects are going to get up. The issue then is simply for those producers who develop fields is to secure LNG export capacity for their exports. This seems probable as long as there are 5 projects being considered. Also it helps that some project sponsors have consumers already, or even customers on-board.

2. Demand: What is the point of gas export capacity if there is no demand. This has always been to Australia's favour. We have a lot of gas and Asia needs a great deal. SE Asia in particular has little gas, or they are running out. They also have little gas. Consider that Thailand has a little gas, Indonesia has a lot but is small with a large population. Brunei is running out, the Philippines has little, China probably has a lot but has a huge demand. Korea and Japan have none and need a lot. Gas is roughly associated with coal, so the market is similar. We have gas at Asia's doorstep, and only Africa is able to compete with us. We might even be supplying NZ if they fail to discover more.

3. Uncertainties: The greatest uncertainties are (a) carbon credits trading schemes, or substitute tax, and (b) the prospect that 'methane seeps' might tarnish the image of CH4. I am unsure about the mechanics but if there are signs that gas extraction are resulting in the dissolution of CH4 from groundwater, then CH4 extraction starts to lose its credibility, unless its related to coal seam extraction (ie. coal mining). Methane is confined in the rock not simply by rock but water pressure. Reduce the water pressure and gas will escape. My understanding is that they pump the fluids back in, so unless there is fractures this is not likely to be a big issue, and likely to occur naturally anyway. i.e. Equilibrium maintained. Am I missing anything? Rest assured the industry is not going to study this, so it will be an academic who does. Finally (c) The science of global warming seems against coal and to a lesser extent coal seam gas & natural gas. I believe global warming is a had, and that sun spot activity offers greater correlation to these events and a far superior causal explanation. Bur emotional, tree-loving, academic scientists with 9-to-5 mind sets will not be convinced, and they have more favour with government.

4. Costs: There is every reason to suggest that new gas drilling and recovery technologies will greatly improve the efficiency of gas extraction. You can also expect cheaper components. Financing costs will also fall as the industry is better understood.

5. Opportunities: There are huge gas resources in Australia's huge coal resources in Queensland in particular, but there are also opportunities for these companies to take their technologies to China, which has a lot of thermal coal, which based on all the mine disasters they have, seem to be 'gassy coals'. Some companies are probably already looking. This will also mean cheaper components.

6. Maturity: The coal seam gas industry is a fairly new industry, but much of the engineering is already well-established from conventional petroleum engineering. Understanding coal basins does take a little bit of time, as each presents unique problems. I think these issues are quickly resolved. Sydney Gas Co's experiences probably say more about the management than the industry technical risk, having had peripheral dealing with the company in the intermediate days. In any respect, Qld coals are better than the thin coal seams they were targeting in the Sydney Basin.

On the whole I think its a very exciting sector to invest in. When you consider that some of these companies control as much gas as can be found under Bass Strait, then you start to see the upside. Of course it is more intense extraction processes, but this is offset by lower risk. CSG recovery costs seem likely to fall as conventional gas drilling costs rise....not to mention insurance costs after the BP Gulf of Mexico disaster.

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Andrew Sheldon www.sheldonthinks.com

A1 Minerals trade this issue

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This is a little late, but I must say I did not expect an issue by A1 Minerals. I did not monitor their cash position or broader financial context. Good luck trying to get that information in the context of the current disclosure regulations - minimum standards become maximum standards. The best time to buy mining stocks is during the recessions. Mining executives lacking validation love to talk, to hear how great their mining projects are. In a bull or strong metal market, money is easier, and they have no problems dispensing with all but mining disclosure.

Anyway, A1 Minerals (ASX.AAM) collapsed to 15c in the last two days, so I bought back into this stock at 15.5c, having sold at 20.5-22.5c. Now 16.5c. I have decided to trade this stock in future because this stock is performing worse than gold is compensating. It therefore only makes sense as a short term trade to me. I guess it was never more than a medium trade anyway... until MGK demonstrates its potential. I am not aware of whether there is an underwriter who is destined to support the stock, however I argue that:
1. Gold price is about to have another rally - particularly in AUD terms
2. The new issue is priced at 18c, so the company will want a price of 20-22c to give shareholders confidence in taking up the issue.
3. Technically, 15c is a strong support, and the chart also suggests a rally to 22c (max), thereafter I expect a pull-back to 20c support, before moving higher...subject to a rebuilding of confidence.

That is about as much as I can predict with a company which discloses little and is always prone to surprise on the negative side....just like our 'arbitrary' government. This stock has to overcome a huge wall of doubt in my mind....as for government...they have no hope. Flawed fundamentally.
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Andrew Sheldon www.sheldonthinks.com

A1 Minerals (ASX.AAM) - best entry for gold

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A1 Minerals (AAM.ASX) as previously indicated represents good buying. The current price action provides another timely entry at 24.5c. The reason being the imminent break out in gold prices. The stock is a new gold miner, it has been unhinged slightly by the Kevin Rudd tax proposal, so it should gain as Rudd removes his foot from his mouth, and replaces his red Marx Manifesto bed time reading with 'Atlas Shrugged', the best-selling novel of Ayn Rand. Hopefully Kevin has a revelation.

We can see from A1 price action that the 24c resistance now becomes support, and I am looking for a new high of around 35c, so this ought to be a good move. It is destined to come because of the rally in gold prices. The new high will attract investment funds, plus I think the AUD will be subdued since it strong gold will likely be associated with subdued economic news. The resistance for the AUD is 0.8674. The support level is around 0.8540. The back down by Rudd will however be the biggest issue. The other appeal of A1 is the prospect of some appealing gold grades. Their drilling highlighted a lot of high-grade near-surface gold. The prospect of higher than expected gold output should help the stock, as well as average down mining costs per ounce. Its a good story. There is not as much resource upside as other stocks, but with a substantial resource base, a rising gold price, the pit design will broaden, which means an expanding mineable resource. There is also the prospect of some expansion of gold resources, but not as much as the boys in Africa, which control a hundred-plus kilometres of favourable Archean geology. The A1 area though is distinctly high grade, and its already mining, so it is a good short-medium term story.

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Andrew Sheldon www.sheldonthinks.com

Resource rent tax back down will buoy mining stocks

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The SMH Online seems to be alluding to the prospects for a backdown by Kevin Rudd on the mining tax. It is safe to say that Rudd will be sparing the precious & base metals industry. I suspect that the govt will instead target the bulk materials industries like coal, iron ore, though its fair to say he will be given a token if they are to stay happy, because those industries are the ones with all the money. The smaller metals are the one's who would be severely impacted by the tax from an operational perspective. Any news ought to have a neutralising impact on the governments prior stupidity.

The implication is that it is a really good time to re-enter mining stocks, with the expectation that Rudd will be backing out of this tax proposal with his tail between his legs. A1 Minerals I think represents good buying on that basis, as it has the most to gain from this tax. I think it has curtailed plans for an expansion of gold production after the tax was announced. It is a high grade producer, and it has broken out, and fallen back to support, i.e. previous resistance, so we can expect a move by it when Rudd announces the backdown. A1 Minerals is WA based.

Other Australian miners and project developers will of course benefit. i.e. coal seam gas producers or developers in particular. Its possible iron ore miners will concede a minor tax increase. Anyway, I do not think this tax will be going ahead as the Liberals will reject it.

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Andrew Sheldon www.sheldonthinks.com

Opposition to Resource Rent Tax

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There are many issues on which I don't agree with the Liberal Party, and the same can be said for Michael Darby (Christian); however we are both opposed to bigger government, and most particularly stupid policy like this Resource Rent Tax. If you would like to register your opposition, you can do so on Facebook.

Want to know more about the issue - refer to my taxation blog. I am less interested in the details of the policy, and more interested in the more fundamental points of its moral legitimacy.

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Author

Andrew Sheldon

Resource Rent Tax Australia

Applied Critical Thinking | www.SheldonThinks.com

MIL Resources (MGK.ASX) - good buying

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Several months ago we signalled that this was a good stock to buy....in this time it has remained in a consolidation band between 2.8-4c. At these prices the stock is only trading at cash value - if you base its value upon $3.3mil in cash and $5mil nominal value for ASX listing. The company has signalled its future direction. It has:

1. Earning a 90% stake in the Amazon Bay iron sands deposit in PNG. This is a large resource on the doorstep to Asia, which will prove particularly attractive if the Rudd government is able to adopt its Resource Rent Tax. Regardless, we believe the Rudd govt has done irreparable damage to Australia's sovereign risk rating, so we expect Chinese, Korean, Indian firms are looking at this project.

2. A 50% stake in Titan Metals: The company has a stake in a number of promising gold projects in PNG through Titan Metals. These projects are at an early stage of testing, but PNG is a highly mineralised province, and we expect some exciting results. MGK is close to completing its farm-in provisions to earn 50%, so we can expect more spending to increase this stake. This is subject to a future agreement. In recent weeks the company has announced its acquisition of a number of attractive gold projects in the northern PNG islands (New Britain area).

We see a lot of upside for investors - conservatively 300%, though as much as 1000%. Hard to say at this point....there is still no drill holes into the first gold project. The company has however extended the strike potential of its most advanced gold project from 3km to 11km.

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Andrew Sheldon www.sheldonthinks.com

Gold stocks set to rally

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We believe gold is poised to break out very soon for new highs. We are currently seeing some consolidation. We can already see this today as people are buying up the gold stocks. I see IGR, AAM and ADU are up today. The best performers are going to be the African stocks, though they have already made significant gains, so the Australian laggards like AAM and IGR can be expected to do as well. There are a number of good gold stocks, e.g. CRE. Another nice one is RED 5 Ltd (RED.ASX).

We will of course be doing everything in our power to stop the Rudd government from taxing miners. This is pure fascism. We have witnessed the collapse of the US, and now the European economies, and now we are going to observe their efforts to tax any profits you make from investing in the only form of wealth left with any tangible value. By the way - don't think that you will be gaining. You will gain in nominal terms against a debased USD or EURO, but don't delude yourself to think that gold is any more useful today than it was a decade ago, its just that all other asset classes will be undermined by financial debasement. i.e. Demand based investments like copper, broad equities and relative investments like currencies. The solution of course is to buy gold stocks in those countries where governments are not taxing profits. The message is thus to buy stocks offshore.

The emerging financial peril might actually give Rudd the support he needs to implement this 'fascist' tax. To all those unthinking housewives, salary men and businessmen who thought the previous asset inflation was real, here is your financial reckoning.

Whilst gold stocks with Australian based projects are going to suffer from the Resource Rent Tax debacle, at least in the short term, other Australian gold stocks which have projects abroad will do well. Africa and the outer areas of China (Mongolia) and Central Asia will be hot spots, as well as PNG, so watch for announcements from these areas. i.e. Wide drilling intersections of over 2g/t. Anything over 40m is impressive, over 20m is good. The more holes the better, the more prospects/targets the better, the shallower the better. See our Mining Fundamentals eBook- I did not write it because I was bored :) If you read enough reports you get a sense of what is good..but it does take years....hence the report.

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Andrew Sheldon www.sheldonthinks.com

Gold stocks set to rally

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We believe gold is poised to break out very soon for new highs. We are currently seeing some consolidation. We can already see this today as people are buying up the gold stocks. I see IGR, AAM and ADU are up today. The best performers are going to be the African stocks, though they have already made significant gains, so the Australian laggards like AAM and IGR can be expected to do as well. There are a number of good gold stocks, e.g. CRE. Another nice one is RED 5 Ltd (RED.ASX).

We will of course be doing everything in our power to stop the Rudd government from taxing miners. This is pure fascism. We have witnessed the collapse of the US, and now the European economies, and now we are going to observe their efforts to tax any profits you make from investing in the only form of wealth left with any tangible value. By the way - don't think that you will be gaining. You will gain in nominal terms against a debased USD or EURO, but don't delude yourself to think that gold is any more useful today than it was a decade ago, its just that all other asset classes will be undermined by financial debasement. i.e. Demand based investments like copper, broad equities and relative investments like currencies. The solution of course is to buy gold stocks in those countries where governments are not taxing profits. The message is thus to buy stocks offshore.

The emerging financial peril might actually give Rudd the support he needs to implement this 'fascist' tax. To all those unthinking housewives, salary men and businessmen who thought the previous asset inflation was real, here is your financial reckoning.

Whilst gold stocks with Australian based projects are going to suffer from the Resource Rent Tax debacle, at least in the short term, other Australian gold stocks which have projects abroad will do well. Africa and the outer areas of China (Mongolia) and Central Asia will be hot spots, as well as PNG, so watch for announcements from these areas. i.e. Wide drilling intersections of over 2g/t. Anything over 40m is impressive, over 20m is good. The more holes the better, the more prospects/targets the better, the shallower the better. See our Mining Fundamentals eBook- I did not write it because I was bored :) If you read enough reports you get a sense of what is good..but it does take years....hence the report.

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Andrew Sheldon www.sheldonthinks.com

Rudd and the coal seam gas industry

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The coal seam gas industry will be greatly impacted if Rudd's tax goes ahead, as will a lot of the smaller, marginal gold producers with shorter project lives.
This is the most blatant abuse of power I've seen since President Magabe seized farming assets from whites in Zimbabwe, President Chiraz nationalised the oil industry in Venezuela and Saudi Arabia nationalised its oil industry in the 1960s. This is not a tax, which would be bad enough, as you can plan for an incremental tax. This is extortion by a government looking to opportunistically grab a share of private wealth. It is government speculating on asset values, and grabbing a share before the prices rise. Consider the impact on asset prices, the higher cost of capital because of the blow-out in sovereign risk. Rudd is not smart enough, or too fascist to be a prime minister. This strategy is a desperate attempt to stay in power and he's extorting wealth from asset owners to pay for it. It is your super money, its your more expensive housing mortgage, its your personal mining investments, its your opportunity cost from Rudd wasting billions on dubious investments. I estimate that the cost of a home loan will rise by 0.2% because of this decision by Rudd. There will be less job creation, loss of investment income, and offsetting losses in tax receipts which will override the benefits of Rudd's tax take. This is the silliness of the proposal. He will cost billions in investment which would otherwise have made the government money. Read about the impact on Qld coal seam gas industry. It will also impact on the coal industry. Even the oil & gas industry will be impacted. Why? The majors will instead commission projects in Oman and Yemen....previously (before Rudd) considered to have a sovereign risk disadvantage. Shell will be saying to the Yemen government....this is what happens when you lack respect for property rights....investment dries up....CASE STUDY Zimbabwe, Middle East, Venezuela and now Australia.

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Andrew Sheldon www.sheldonthinks.com

Alliance Resources Limited (ASX:AGS) - uranium asset in waiting

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Alliance Resources Limited (ASX:AGS) has developed the Four Mile & Four Mile West uranium projects in South Australia near the existing Beverley uranium mine. The project JV is a satellite development to the existing mine owned by Quasar Resources. The company also has gold exploration interests in Maldon, Victoria, which were to be the basis for a amalgamation, however that separate deal did not go through.

In the case of the Four Mile project, the uranium resource is the highest grade project in the world, and offers a 15 year life based on existing resources. The problem is that the JV has been riddled with contentious JV disputes. The share price of AGS has fallen back to 40c from a high of $2.74, and after an issue at 68c. The dispute is currently before the SA Supreme Court.

This is a very attractive project. Sadly you could argue (ethics aside) that this project has been sabotaged by:

1. The 'hard-nosed' strategic games played by Quasar Resources

2. The failure of AGS to anticipate the problems which ought to have been expected with this type of JV agreement, which left them beholden to the JV partner.

There was a lack of critical thinking, or dealing from strength, displayed by AGS. So the project ends up in court, where the judge will evaluate the respective ethical and commercial arguments. There seems to be an expectation that people will do the right thing by you. People can rationalise all types of actions, and the only way to protect yourself is to anticipate problems. This is the role of critical thinking. One cannot really rely on the courts to protect you in these instances as a shareholder because you just don't know where you stand. The project as an investor is that the Four Mile project is captive to the Beverley treatment facility.

Nice project - but what a mess! Anyway for anyone interested in the details, take a look at the following presentation (25th Nov 2009) which I viewed. Draw your own conclusions. AGS is currently capitalised at $130 million, it has $45 million in cash, and a project tied up in the courts. At this point, the uranium spot price is at a low. The appeal of this company is:

1. If AGS win the court action, they will have achieved a significant payout to fund new developments, as well as resolving their previous issues (you would hope).

2. If Quasar win, then you might expect a takeover at current prices for the assets.

Certainly I think this project is one to watch for a decision on the Supreme Court case. I also note that the stock price has fallen to 42c. This is getting close to its 5-year low of 29c, so that should provide an excellent entry. I also note that spot uranium prices are at their lows, and are probably going to recover from this point. Remember, this is the highest grade uranium project, so it ranks high in terms of cost competitiveness. Of course, not having to duplicate (Beverley) processing facilities is another strong point. See Google Finance for 5-year chart.

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Andrew Sheldon www.sheldonthinks.com

A1 Minerals (ASX.AAM) - best entry for gold

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Unsurprisingly, gold has broken out, reaching a new 'record' high of $1230/oz. More promising is the fact that it closed at its high, a strong indicator that it will go higher. We might reasonably expect a rally to around $1500/oz. We think A1 Minerals (AAM.ASX) - a new gold producer - is the best exposure to this sector because it has just secured funding for a plant expansion.

Their management does not much have my confidence - but you don't buy a car because its pretty, you but it because its cheap and gets you from A to B. And you don't care if you crash it. :)

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Andrew Sheldon www.sheldonthinks.com

Cockatoo Coal (ASX.COK) - finds support

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Cockatoo Coal (ASX.COK) is a stock which we have highlighted before. I see that Patersons Research has placed a BUY on this stock, and I agree. Based on their report, they look to have a lot of promise moving forward. A lot of the executives behind the company have a marketing background. The people I would see at a lot of coal conferences years ago. You have to credit the coal industry. They know how to sell coal. Coal conferences in tropical paradises like Bali and Goa. I wonder if they still do that. Tax deductive as well. Lovely life if you are looking for career direction. My problem was remembering to eat food between beers. The beer comes looking for you, but you have to go looking for the food. I never remembered too.

See the Paterson report here. Importantly the stock has hit technical support at 40c and recovered. Good exposure to the coal industry.

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Andrew Sheldon www.sheldonthinks.com

Comet Ridge Ltd (ASX:COI) at support

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In the same vein as the last pointer - Comet Ridge Ltd (COI) has fallen to support. The chart for Blue Energy (BUL.ASX) by comparison does not look good.

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Andrew Sheldon www.sheldonthinks.com

Bandanna Energy (BND.ASX) has upside

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Bandanna Energy (BND.ASX) is another one of the coal seam methane developers in Queensland. The company is exploring in the Bowen & Gallilee Basins, and I understand it is preparing a pre-feasibility study, so they are at a pretty advanced stage.

I have not investigated this stock closely. I mention it only because I stumbled upon it. The chart suggests this is a good time to buy after the US-Asia sell-off. As you can see the current price is at the base trend price. I used to work for the chairman of this company. I do not have inside information. He just has a good track record, is a good manager, and is a major equity holder in this company. I also suggest the coal seam gas sector has a lot of promise. It should find support around current levels.

This is a moot point but - Gas will be a major source of energy in future for distributed power solutions. This is a long term outlook - but I suggest in future, you will each have a $5,000 power generating fuel cell in your home which will produce electricity, distilled drinking & hot water, air conditioning and refrigeration. I also believe that this will be a precursor to a solar concentrator which does the same thing in combination with a variant of the Stirling engine. The Stirling engine is old, under-appreciated technology. It was never developed because of its low electricity output and higher cost components.

Update - I have just had a read of a presentation by Jeremy Barlow about this company. They have a suite of coal projects as well which adds a lot of value to the company. Based on the basic information provided, the coal resources to the coast is decent quality coal, though the coal thickness is on the 'thin side'. They have thicker coal seams further out west which will incur higher transport costs. The reality I guess is that securing quality coal with the best logistics is getting harder. They have AMCI, a major coal trading company spending $25mil, and they have other projects.

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Andrew Sheldon www.sheldonthinks.com

A1 Minerals poised to move (AAM.ASX)

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A1 Minerals (AAM) has just absorbed a $4.3 million placement. The implication of that issue is that is that the company is well-placed to expand gold output over the coming year. The company is the most recent gold producer, and is thus best positioned to benefit from the current increase in gold prices. Being a new miner, it is probable it will be able to process some of its higher grade ore, as it has a number of resource areas to chose from. This will of course depend on the ore distribution, however I seem to remember some very attractive near-surface drill intersections. We might thus expect a high profit in the first year, particularly to benefit before the 'new tax', which I believe will be dropped. That is more upside of course for this market. It will of course depend on the quality of the argument presented by the mining industry...they do not give me confidence.

AAM might get an immediate kick from the $40/oz rise in the gold price, though the market might be more conservative because the gold price is lingering below the $1220 resistance level. We have yet to see gold break out to a new high. More importantly however is that AAM is poised on support above 20c - see chart from Google Finance. The other attraction of AAM is its relatively higher grade gold compared to other miners. There will be quarters where they are mining 4-5g/t average, maybe better judging from the grades.

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Andrew Sheldon www.sheldonthinks.com

Opportunities for resource rent tax

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My advice to investors is that this resource rent tax will not proceed for several reasons, so it will actually make a compelling opportunity to buy resource stocks. The reason why I think so is:

1. The Rudd govt is going to be attacked (and rightly so) by the combined financial resources of the mining industry, and there are a few billionaires among them.
2. The Rudd government is only doing this to win the election. He does not even care if he raises the money, he only needs to be 'perceived' to be raising the money, so for the sake of giving you 'seemingly' funded election promises.
3. The tax proposal is already costing you money because Australia's sovereign credit rating is going to rise just by threatening to introduce the tax, and will increase further still if he does adopt the policy. i.e. All those Australians will housing loans will be slugged by higher interest rates. Rudd does not know, or does not care.

I want to correct some misconceptions:

1. Australians own the resources so the government has a right to tax them - 40% is reasonable? That is the same logic that Saudi Arabia used when it nationalised BP's oil in the Middle East. Yes, we are fighting in the Middle East for freedom right? Did you ever wonder whether we should be fighting for freedom in Australia when your leader is arbitrarily applying taxes like they have no consequences. Resources are not just 'found' - lest not some of them. It takes a lot of money to find them, and investors need upside to justify the investment. They are also very volatile, so if there is no 'huge upside', people will not invest.
2. Rudd cares little about Australia's long term future, he is only interested in his short term political budget. He needs to 'out-promise' the Liberals. Frankly 'I think nothing will save him' as Gough would say. Sounds like Gough politics doesn't it.
3. The misconception that mining makes HUGE GAINS. We need to remember that whilst metal prices have risen a great deal over the last decade, they were at VERY LOW levels for 15 odd years. That is why the stock prices have done rather well. Also consider that the exchange rage has doubled over that period, so since metal prices are based in USD, the real metal price gain is less. Also consider the huge cost inflation for mining services because of the demand for minerals from China and India.

Frankly, I think Rudd's move is the thin edge of the wedge. I can see South Africa, Canada, Chile, Brazil, USA and other countries to adopt the same tax system to increase the government's share of corporate profits. After all these companies can't move minds offshore. This will still hurt investors, it will be inflationary, and it will be a sad day for freedom. This is the worst type of government policy - the opportunistic, arbitrary, unprincipled...so what's new? The amount of waste it will add up to, and the huge opportunity cost.

Mind you - you don't want to give him the chance to raise taxes - because you don't know how stupid he is. The prospect of no tax of course means there could be great market opportunities for you when Labor finally abandon the tax - after the election to be sure!

see my taxation blog - I have a lot to say on this issue!

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Andrew Sheldon www.sheldonthinks.com

Opportunistic take expropriation by Rudd fascism

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Mining stocks have been hit by plans by Kevin Rudd to adopt a resource rent tax on mining company profits. This is huge because basically its going to drive a lot of exploration offshore - at least in non-strategic mining industries like base metals. Even iron ore might suffer. Its not simply a case of taxing, its the lack of warning. Kevin is really going to get punished for this STUPID decision. I have written more about this on my taxation blog.

I think he will be forced to reverse this idea, or severely back down. I don't even think he understands the tax, because if he thinks a company making the same return on investment as a bond investor is fair he doesn't understand mining risks. Ok, there are huge resources of iron ore, oil & gas in WA, and the exploration risks are relatively small. But thats not true for most other mining.

My suggestion to investors is abandon mining companies with projects in Australia. I am curious - is this a project-related tax or a corporate tax, because if its a corporate tax, he is destined to push all mining companies offshore. Is this a project tax? Then it pushes investment offshore, so I can still invest in mining companies with projects overseas.

I think this is not going to last. Australia Minerals Council CEO is currently hyperventilating, but will be on the next flight to Canberra, to talk Rudd down out of the trees, where he is truly lost. He will understand the full force of the mining industry in the next election if he does this. Twiggy Forester of Fortescue Mining fame will I suspect be spending $20mil on campaigning in the next election if I am not mistaken.

P.S. Please don't tell me I don't know what fascism is....I have yet to meet anyone who knows. But its the only word you might understand since too few people are politically correct. Read my taxation and politics blogs and you will understand.

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Andrew Sheldon www.sheldonthinks.com

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