The types of gold stocks you should buy

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If you are interested in gold stocks - as you should be right now - there are several things that you should look for. These factors will make the difference between exemplary share price performance and the mediocrity. It should be apparent that some stocks have already started moving up, so you need to look at your leverage to the gold boom. The factors you want to consider are:

1. Long life precious metals preserves - This is important because large resources support long life mining operations, they have greater scope for expansion, and they are more likely to be taken over. They also tend to have lower unit costs, though higher upfront capital costs.
2. The prospect of reserve (production) increases: This is important because greater production offers the prospect of higher earnings through more sales, lower costs (economies of scale) and maybe even greater resources (i.e. lower costs extends the boundaries of the mineralisation that is commercially viable, particularly if gold prices continue going up - as they will). Any incremental production expansion is also very cheap since a lot of the original plant does not need to be duplicated.
3. Unhedged gold output (or moving towards unhedging): This is important because you don't want to hold a stock that is getting only $US600/oz for its gold output when the market price is $1000/oz. The decision to hedge is often thrust upon projects by investment banks who don't understand the metals market. Hedging - contrary to popular opinion - can prove to be the death of a mining company. e.g. Highlands Pacific. As prices move up hedgers have to buy back gold at >$US1000/oz, to buy back their forward hedges at say $600/oz, in the hope that gold will go to $US2000/oz (as I expect).
4. Large tonnage resource - a lot of gold resources are messy, and thus small scale, selective and high cost. These types of resources are much more difficult to mine profitably. Incidentally the times of gold deposits which offer the most consistent gold grades tend to be 'porphyry copper-gold deposits' along former or current continental margins.
5. Grade & access: The grade of the gold and its depth underground are other important issues. We would prefer to see the gold at depths of <100m for easy ore body access.
6. Gold recovery: Metallurgical techniques tend to be well-proven these days making the gold recovery relatively less important. It is normall for gold recoveries to be >88%, and as high as 98%. The best possible resources allow treatment by solely cheap gravity methods, say if free, nuggetty gold, but in most cases this is just a portion of the recoverable gold, so both process circuits might be required for the optimal recovery.
7. Stage of development: Gold projects vary in their development lead time from 2 years to 10 years; even longer if there is a period of stagnant metal prices. We would be interested in gold projects which are close to financing. This is a very hard time to raise capital, so we would hope that the equity contribution has already been raised and not spent sustaining exploration in these hard times, notwithstanding the value of exploration.

These are the most important factors. If you want further information, please refer to the eBook on selecting mining stocks. It will give you a greater understanding of these topics, as well as identify other issues. View the table of contents and save $20 on this book by paying just $US19.95.
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Andrew Sheldon www.sheldonthinks.com

Find & development cost for WA gas

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Reading a recent report for Buru Energy, a spin-off from the old ARC Energy absorbed by AWE Worldwide, I am inclined to think that the energy market is worth a sniff or two. The following chart is food for thought. It shows the find & development costs and revenues for gas discoveries in Western Australia (based on oil equivalent prices). The implication is that oil & gas prices have fallen almost to the level of baseline costs. This would of course scare off a lot of buyers, but I reflect on the collapse in equity prices and ponder whether its time to buy as a counter-cyclical opportunity.

Looking at the structure of the Canning Basin, one would have to conclude that the onshore area has potential, though it does remain relatively unproven in terms of prospectivity. My initial view would be that they would inevitably face competition from any gas pipeline built from northern Australia to Perth. Having said that, if such a pipeline was going to be built, you would more likely target the East Coast market given that there is an existing pipeline (half way) from Brisbane/Sydney to Roma. More likely still is a 100% focus in northern Australia on LNG exports. Why? Because northern Australia is very attractive as a gas supply point compared to less secure areas like Yemen or Oman. Australia is (less importantly given the scale of ships) is also closer to Asia.
Buru Energy might just have a lucrative opportunity in WA supplying gas to future gold mines as the gold price takes off. This company has cash reserves of $60mil, and its only capitalised at $40mil. Looks cheap to me! And based on a gas price at current costs, you would have to conclude that this stock has nothing but upside. The problem is that drilling of targets is not due until 2010. In the interim you can focus on gold. So for now I would just watch this one. I am more interested in the gas potential than the oil given the following economics and the history of discoveries from the basin.
Current production from Blina and associated oilfields:
Ultimate recoverable 2P reserves of all fields ~3 mmbbls
Discovered 1981 - first production in 1983 at ~1,000 bopd
Production of 30 bopd when Buru acquired the fields
Recent workover program increased production to +200 bopd
Energy economics:
Field opex ~$10/bbl
Blina oil production facility
Trucking costs to Perth ~$25/bbl
Current A$ oil price ~$65/bbl
Projected annual net revenue at 100 bopd rates ~$2.4 million

This is hardly attractive, but you can readily see that if they have an oil or gas discovery, this company is shaping up as a positive play. The Blina field highlights the potential, and this field is relatively untested. One to watch!
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Andrew Sheldon www.sheldonthinks.com

Intrepid Mines (IAU.ASX)

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Just a quick review of some mineral explorers given that the majors are starting to move up. The intent is to look for large tonnage project sponsors. Intrepid Mines does not interest me much because its Tujuh Bukit porphyry gold project in Indonesia does not host rich enough gold mineralisation. We will follow with interest.

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Andrew Sheldon www.sheldonthinks.com

Energy - Are 'hot rocks' so hot?

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Reading the PTR website you could be forgiven for thinking that renewable energy has a positive outlook and thus, it must be considered a good investment. I think there will come a time when it will be a good investment, but I would suggest that its a long way off. The attached figure comes from the PTR 'hot rocks' presentation on the 23rd Feb 2009. The company highlights the positive funding and licensing for this industry. The bad news however is that its going to come from major energy companies like British Gas/Origin Energy, Santos, and others. I can see in the medium term that investment in the smaller players is just going to evaporate. Maybe it already has because they are already putting their hands out for government funding. You might ask yourself is the government going to put money into renewable energy to stimulate the domestic economy. I would suggest that the Australian government is more likely to subsidise home insulation or wind farms than 'hot rock' technology. The reason for suggesting this is that the technology is tangible, the visual presence is far greater (wind farms on the horizon - so like as they are in Bourke's backyard), and it will create more jobs. I think hot rocks will get token funding so Kevin Rudd can appear green nevertheless. The presentation provided a list of all the current players in the industry:

1. Geodynamics 2. Petratherm (PTR.ASX)
3. Geothermal Resources 4. Green Rock Energy
5. Torrens Energy 6. Eden Energy/Terratherma
7. Panax 8. Pacific Hydro
9. Teck Cominco (Canada) 10. Granite Power
11. Gradient Energy 12. AGL (w/Torrens Energy)
13. TRU Energy (w/ Petratherm) 14. Tata Power (w/ Geodynamics)
15. ASX Listed International SX Listed 16. Tri-Star Energy
17. Clean Energy Australasia 18. Osiris Energy
19. Origin Energy 20. Callabonna
21. Deep Energy 22. Inferus (Southern Gold)
23. A-B-L-R Joint Venture 24. AAA Energy
25. Earth Heat 26. New World Energy
27. Near Surface Geothermal 28. Stuart Petroleum
29. Beach Petroleum

I have added a red line to the image above to highlight the probability that, as more money goes in, the corresponding share price for the remaining hot rock companieswill fall. The best prospects will be those companies which are able to affiliate with some major companies. The final result will be that they will be absorbed by those enterprises. The implication is that there is a lot of money to be spent before any of these companies realise a profit. The next 4-5 years is going to be a period of low energy prices which means there will be less justification for this greenfields exploration. There will come a time when the industry has appeal, though it remains to be seen whether any small player will be significant enough to justify an investment in this sector. The capital investment is significantly more than coal seam methane.
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Andrew Sheldon www.sheldonthinks.com

How to pick the best gold mining stocks!

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Picking stocks is an art form. A great deal of knowledge and experience goes into finding a good stock. With the gold market abuzz, it is important to be able to differentiate a good stock from a bad stock. In times of booms, like the current gold boom, there is a tendency for people to catch on to the latest stock recommendations from brokers or friends. The reality is brokers are sales people with vested interests, and friends can be just as blinded by monetary gains as the broker.
The challenge judging stocks through your own eyes is that lack of knowledge and experience. For this reason I have encapsulated over 20 years of skill and experience 'picking mining stocks' into a single eBook. You will have a tool to critically assess your friend's tips and broker recommendations. A rising tide tends to lift all ships, but we are really looking for a king tide. There is no reason you cannot invest in the best stocks. All you need is the skills to differentiate.
I started picking stocks when I was just 14yo. I would go into the Australian Stock Exchange in Bond Street, Sydney (now Bridge Street). At the time you could pay just 50c for mining data sheets. The good news then was that you could pay 50c and get a whole series for a particular alphabetic letter. Today you would pay 50c per page. The 50c was a lot of money to me then, so I'd stay in the library all day, going through all the stocks. It was so easy to pick them by this approach as the good stocks stuck out like a sore thumb. I did this on my school and university holidays. When I wasn't researching stocks I was working with mining companies. I had such a good attitude. I really was quite distinct from my peers. They might have been smart, but they were not street smart. Well not Bond Street smart! More like dope street smart! Anyway, read my eBook and find out how to invest in stocks and company options that will make you over 1000% returns.
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Andrew Sheldon www.sheldonthinks.com

Atlantic Gold NL (ATV.ASX) & Acadian Mining Corp (ADA.TSX)

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Another tip coming from a reader. Rest assured I have checked these stocks out myself, and you are free to do so. Atlantic Gold is an Australian gold project developer. It has a 1.8moz gold resource in Nova Scotia, Canada. The company has 228mil shares, which last traded at 5.2c, giving the stock a market capitalisation of $11.8mil.

The grades for this resource are not high, however the attraction is the capacity to process the ore through a nearby base metals mine 40km away. The net present value of these project options is around $CAN50mil. This does not strike me as great returns, though there is substantive upside from an increase in resources and higher gold prices. I have a bigger concern actually. Will not the operational viability of the gold plant depend on the processing of base metals. If the plant is designed for base metals now, one would want to be assured that the gold is processed through a completely different circuit as opposed to blending with the base metals ore. Actually I'm not so familar with gold hybrid processing plants. If they are separate streams, then it might in fact be an opportunity for ATV to purchase ADA in future to control the plant.

The charts show that both stocks are cheap, but I think the upside is short run for the foreseeable future. They need to clarify a strategy. There is a possibility of a merger between these operations, and perhaps between the companies. Not so interested in this play. Too many things can go wrong. eg. Processing, JV negotiations, exploration upside. The ADA resources are small satellite deposits making it messy mine planning. No way do I see them processing ore by the end of 2009.
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Andrew Sheldon www.sheldonthinks.com

How to pick winning stocks! Based on results.

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About 8 months ago I wrote an eBook titled 'Mining Fundamentals - How to pick winning stocks'. It encapsulates the ideas that I use to find the best performing stocks. Perhaps the greatest market myth is that you need a mining boom to make a lot of money from mining stocks. I will give you several reasons why this is not true - both conceptual and based on actual experience. Starting with the experience:
1. Before the recent mining book even started in earnest I made a great deal of money on Aquarius Platinum options. I purchased these for 25c and sold them for $8.75. When I bought them they were a $4mil company. In the mining boom they were worth as much as $4billion. But I had already made my fortune by 2000. I was living in Japan at the time. Platinum prices at the time were doing very well, but also management had a string of good platinum projects which South African (open cut) and Australians (platinum) analysts did not understand. Investors in London quickly appreciated the stock when it was listed on the Alternative Investment Market (AIM) in London. I made almost 3000% on the options in 3 years. You need to understand why. Decision making in financial institutions is driven by managers who invest in old, proven paradigms. If they ever had critical thinking skills they abandoned them when they moved into mining finance. I assure you stockbroking is all about making money, so you can understand why broking executives like proven stories. My former employer would introduce me as 'This is Andrew......he picked Aquarius Platinum several years ago'. I had become a 'bankable proven story'.

2. The other stock was Minotaur Resources. This was also a very cheap stock - capitalised at just $2mil at the time. It had even less when I bought it. Just a VERY large untested coincident geochem/geophysical anomaly in an outback Australian area where nobody had ever looked for base metals. What was more interesting was that there was a $4 billion mine (Olympic Dam) up the road. I bought the shares at 14c because the options were tightly held. In the week following I managed to pick up $6000 of options at 5c. I actually sold this stock too early. Several months passed as I anxiously waited drilling results. In all honesty I was VERY pissed off with the management of this company. They waited until they completed the hole at 729m before they released the results to the market. I'd lost confidence in that time and sold the 'spec' to pay for a NZ holiday with my GF. Upon my return the stock had raced to $2.40, the options around $2.20. On paper I should have been a millionaire. I contemplated legal action, but I also said that I can do this again, since this occurred in the wake of Aquarius Platinum. So this stock offered gains of 4300% odd in around 3 months. The project was eventually bought out by BHP Billiton.

The implication is that a mining boom is like a rising tide that lifts all boats. It is actually harder to find great bargains in a mining boom because even speculative appeal has a premium value attached to it. There are thousands of analysts employed to search for such stories. They have just lost their jobs. When I bought these 2 companies no one was interested in them. In a mining boom Minotaur (the explorer) would have been valued at $40-60mil, and Aquarius Platinum around $150mil. The future lies with investors who can see new paradigms - not old proven ones that no every mining analyst appreciates. In 2001 analysts in Australia did not understand platinum (as there was only Helix Res, which had no great results). In South Africa, analysts did not understand the benefits of open cut economics, or the coming platinum boom. For a year there were no buyers after I bought Aquarius Platinum. Minotaur was the same - no one was interested in exploration, yet that is the time when you should be, if you can establish credible evidence that they will be a future miner. Minotaur's first drill intersection was over 400m of 1% copper. No question that is going to be a mining operation.
Paladin Resources was another example. I actually missed this one, despite having looked at it. I missed it because I did not attempt to understand the uranium market 8 years ago. If I did I would have realised that there was no new supplies to replace the depleting weapons-grade uranium stockpiles. Instead I diminished the story thinking 'There is plenty of uranium'. The issue was however - 'Lack of operating mine capacity in an energy boom'. Plenty of resources, not enough capacity, and it takes 4-10 years to commission a new mine. Paladin did very well like the stocks above. Another more recent great story was Queensland Gas Co. In fact all coal seam gas producers have done pretty well but I liked that this company has the largest acreage close to gas transmission pipelines, but Arrow Energy was another good one. QGC is now being taken over by British Gas. So what is the next great story? I've got some ideas.

Stock analysis is a conceptual science which requires anticipating future events. The returns are greatest for those people who can see further and wider than anyone else. There is money in it. You don't even need people skills to achieve these results. But you need something else.... the right trading psychology. Issues such a patience, keeping information in perspective, assessing market sentiment can lead you astray.

For those who buy the report I will identify a number of stocks which will offer spectacular returns in future. There are 3 stocks which I have in mind based on the current market dynamics.

This is a good time to start looking!
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Andrew Sheldon www.sheldonthinks.com

SMH highlights poor ASX disclosure compliance

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About 6-8 months ago I drew attention to the poor state of disclosure for ASX stocks, particularly the smaller stocks that the ASX could not be bothered with. It strikes me as ludicrous that the ASX, an exchange operator and private company would be charged with responsibility for regulating company announcements. I've had a bad time because of poor disclosure going back many economic cycles...it has always been the same deal. ASX self-regulation, and from ASIC 'lack of resources'. They used to say the same about the police, or the police would say about themselves. My experience includes:
1. Matrix Resources - operated for 8 months without any news on excessive mining costs
2. Gleneagle Gold - understated mining costs, downplayed issues
3. Minotaur Resources - huge opportunity cost for me because I bought this stock (14c) & option (5c) to watch them go to $2.40 several months later because they discovered the size resource I had expected. Would have made me a millionaire. I sold because after 3 months I figured they didn't find anything...but no...they had time to drill a 700m hole and not report the fact that they had encountered any mineralisation until the results were in. Compare that with the oil industry's policy. They practically tell you every metre of progress. Newsworthy? I'd say so. A $3mil company might be worth $2 billion.
4. Matilda Resources - this was another stock that promised a lot and didn't convey or account for its lack of results.

This article from the ASX highlights some more incidents by companies doing what they do best - ignoring the interest of shareholders. They all do it to some extent. Are they custodians of shareholder interests, or some interests at the expense of others. There is a minefield of issues that have to be investigated, including announcements, the content of announcements, secret deals, director equity divestment & trading, use of short selling. There is room for self-serving conduct through CFD platforms in the like which I suggest are not even monitored, and easily avoided.
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Andrew Sheldon www.sheldonthinks.com

Gold stocks - emerging producers

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One gold stock I have been watching lately is Perseus Mining. It has 2 attractive gold projects in Africa that are generating very attractive drilling results. In this market the company is having a lot of trouble gaining funding. Its probable it will be taken over at some point, and a capital raising will likely provide the opportunity. They still need funds, and the weak AUD has just made things that harder.
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Andrew Sheldon www.sheldonthinks.com

Lihir Gold (LGL)

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So what's good in gold stocks?

I would suggest in this first phase we want to be investing in mature gold producers with a significant resource base and output. We are looking at pure gold producers. Lihir Gold was particularly attractive when oil prices were high because although it was off-grid, it was generating geothermal energy. With oil prices at $US62/barrel, it has lost that cost advantage. I have not done any research on this company, but because its a mature mine, its likely to be a little bit more pricey (unit cost per ounce wise) now because its a deeper mine, but that's ok because gold prices are going to do very well. The appeal is that it is likely to be higher unit cost, its an estblished producer and its close to support levels. I will follow up with further readings. The other good news is that its no longer a one-mine company. It is taking steps to diversify. Our target entry price on this stock is $1.36, but place your order because I think it will not close at those levels.
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Andrew Sheldon www.sheldonthinks.com

Gold stocks people...gold stocks...in this closing Oct week

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Gold prices have come off a bit over the last few months. This might scare a few people, but actually its only positioning gold stocks for a very strong rally. Consider that since the $A is trading at $0.6236, the gold price in $A terms is $1230/oz, that's significantly higher than any prices we saw when gold prices hit their low of $745/oz, and the $A was in the 0.90s. The difference this time is that there is no immediate reason to think that the $A will fully recover because the $A is foremost a diversified minerals producer. So weak base metals and weaker coal & iron ore prices after those commodities are re-contracted in April will mean a subdued $A, which means FANTASTIC metal prices in Australian dollar terms, particularly gold, silver and platinum. We don't have much silver and platinum, but we have a significant amount of gold, so gold stocks hit by the equity market sell off are going to make a lot of sense.
Interested in gold stocks - check out my reports.
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Andrew Sheldon www.sheldonthinks.com

Never a better time to buy precious metal stocks

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Now is the time to buy gold, silver and platinum stocks. The question is which one. Today and tomorrow are your best days to buy, even though gold might not break out of its consolidation pattern for another few weeks. It will break out, either up or down, and there is no way its going down. This type of chart pattern suggests it will make a move to $1400/oz. See my early post on this, and for information on the types of stocks you should be buying, take a look at my report.
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Andrew Sheldon www.sheldonthinks.com

Pan Australian (PNA.ASX) close to buy

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PNA is close to an entry point. This company controls a recently opened copper-gold mine in Laos. The project is a large mine. Copper prices have been hit hard by recent economic weakness, and the collapse of the metal price complex. I do believe we are close to a point of support. Stocks like PNA will offer good trading off their lows, though I would only be looking at gold stocks to offer sustained upside. They have been suffering too because of broader asset deflation, but they will come good. We saw in the 1970s that gold prices fell 50% before they put in a glorious rise. Gold prices are performing fine. I think we have to wait for asset deflation to finish before we see increases. So PNA looks like a good buy at 36c, though it might fall as low as 30c in any days trading. I think we will be looking at another bad day on Wall Street on Weds night, followed by a recovery Thurs.

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Andrew Sheldon www.sheldonthinks.com

Mincor Resources (MCR.ASX) at $1.00

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Mincor finally reached $1.00. In fact I was able to pick up some at 97c. Generally stocks will approach a support, and might not even touch or pull up short of target. Two weeks ago Mincor reached $1.03 before rallying to $1.35. Recent weakness brought them back to $0.93 this morning, but they look like closing today well up from their low, and likely above $1.00. I am expecting a stronger Dow overnight. In fact a strong week.
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Andrew Sheldon www.sheldonthinks.com

Mincor Resources (MCR.ASX) wait for $1.00 entry

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Mincor is getting very close to my preferred entry price. One wonders if it will ever get there. Market sentiment is pretty bad, but as I break apart these arguments that say we are headed for another Great Depression, I continue to maintain that the market is not at that point yet. I believe that there is another rally in this market.
The fundamentals for Mincor look very good. Firstly the company produces 16,500 tonnes of nickel concentrate, it controls a large mine which is generating good cashflows, even if nickel prices are falling. There are some salient features:
1. The company last year generated earnings of $64 million, or around 16c per share, so at $1 share price thats a yield of 16%, before consideration of the nickel price falls since.
2. Nickel prices have bottomed based on my technical analysis. They have fallen to a solid support level
3. The company is under-geared. They have no debt, and $112 million in cash despite having capital expenditure requirements of around $36mil per annum for their Mittal mine. This means that their capital resources are under-utilised
4. The company is is a very good position to make an acquisition, or itself be the target of an acquisition. The share register is open. J.P. Morgan is the largest shareholder at 12%. From its perspective, there could not be a better opportunity to invest in this company, both for its nickel production assets, its strategy, plus the promise of using its $112 million cash kitty.
5. The mine has a good mine life expectancy, and the company is increasing resources

I will generate more analysis on this company over time.
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Andrew Sheldon www.sheldonthinks.com

Precious Metals Australia (PNA.ASX)

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Precious Metals Australia (PMA.ASX) has positive exposure to two of the better metals in the market - copper and gold. More importantly, as the company moves closer to mining its Laos mining project it has been sold off along with the broad market. This stock will offer a very good market entry as it drops down to support between 47-50c.

Its probable that the collapse of AIG will provide the impetus for the market after the recent collapse of Fannie & Fred Mae, the absorption of Merril Lynch, and the collapse of Lehman Bros. Interestingly a Macquarie Bank executive told me about the problems with Lehman a month ago, so its interesting how slow things unfold. So much for market disclosure.

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Andrew Sheldon www.sheldonthinks.com

Red 5 - little progress made

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Looking at the cash balance of Red 5, its readily apparent that little progress has been made to develop a mine. I dare say the reason is the lack of skilled labour in the Philippines to carry out projects. Why? Well a lot of the miners in the Philippines might be experiencing a loss of staff to countries like Australia, Canada and elsewhere. They still have $30mil in the bank. A current capitalisation at $39 millio, gives a market value of just $10 mil for the gold project. Very attractive financially. The problem however is that they will need to look like they are doing something, which means spending money on exploration. It will take years for the shortage of geoscientists, plant and materials to be corrected.
So they will spend down that money on exploration, so in 2 years they will be doing another capital raising to replace lost funds, as well as extra funds to correct the shortfall caused by inflation, so say they have $20mil, then they will likely need to raise another $15-20mil, at a time when their share price is 4c. That means another 375 million shares of dilution (to raise $15mil) minimum. That will send their issued capital to over 1 billion shares. Not a compelling investment story at this time. I would come back and have another look in 18 months.
Sorry to the investors who are being lead astray by the high commodity prices and the 'promise' of attractive projects. The issue is scale. But even the large scale projects are going to struggle unless they are already in production. Commodities are going to do very well in future, partially carried by costs, partly by tight supply. The solution of course is to trade commodities for the time being, and switch back into miners at some point in future.
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Andrew Sheldon www.sheldonthinks.com

Why mining stocks make less sense

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One of the prices you pay for living overseas is the lost access to information. Its apparent to me that spec mining companies are facing considerable problems commissioning mines. Serious problems securing technical staff and retaining them. The mining industry does not talk about it knowing that it will impact on their share prices. Things just get delayed indefinitely. So their share prices continue to sag. It is the larger companies which are able to attract the best staff, and small mining companies are left with poorly trained foreigners. I see the signs for geologists in the windows of recruiting agencies in the Philippines. Its a global problem and large companies are best positioned to ride it out. Those sectors attracting most of the people are those commodities with high prices and large scale projects. These include oil & gas, uranium, coal, iron ore, alumina and gold. For these reasons I would not be investing in specs for the next few years. I will not be closing down this blog, but I will be focusing on potentially large scale projects which have the capacity to attract foreign funding and good staff. eg. MLX, WVL.
I would advise people to focus on the larger companies and commodities trading, whether through futures, options or CFDs for exposure to this sector. I actually saw this problem emerging back in 2005, but I must say I did not appreciate the severity of it. The reason of course is because I'm not on the ground doing field visits any more, and only reading Australian newspapers online. My father was telling me Australia needs 20,000 mining engineers, but only has 6,000. I guess that is a forecast for the next 5 years, but its implications remain clear. Small scale mining will be starved of funds and staff. A project that would normally take 2 years to commission will take 7 years and 3 times the cost at the small end of the market.
These small companies will not say why they are being undervalued but that is the reason. I thought the credit squeeze was raising risk premiums, but its for the most part the tight labour market. For example RED 5 raised $35 million for its project funding, yet you don't see any evidence that they are performing any construction work. On the country, I get the impression that they are more likely holding back information, so they can put a nice drill intersection announcement in their quarterlies. Its all delay tactics. In the meantime share prices keep tumbling and they have to go back to the market for more funds. Also you can't trust the quality of the work performed by these companies. They are using people that would not otherwise get a job in a weaker market. I don't see things improving for years. That is why fund managers are so keen on commodities despite a subdued outlook, even the industrial commodities are looking good. Its just just a speculative bubble, supply is very tight. The tightness runs right up the supply chain. It does not help that you have geoscientists opting to take lifestyle choices at a time of tight supply, by choosing to set up their own company rather than be a salary man. I think a lot of these small companies will merge. This is paradoxical because prices are high. Serious inflation ahead is not going to help.
I was just about to buy a lot of AAM because they are finally talking about building a treatment plant. They have $5mil in cash, $1 billion of gold in the ground, thats $10mil value for a $1bil of gold, but lets not forget the costs, delays, plant constraints to get it out, and heaps more capital raisings. When you consider these issues, I think this mine is not going to be commissioned for another 4-5 years, and they will be good buying around 3c. We live in faith because the dynamics of this market are like nothing we have seen in the past. Living overseas I was blind to it. Really it will be some time before money is made in this market. There is a huge backlog of critical plant as well, even if you could get your plant designed. This of course doesn't stop you from trading these stocks.
Commodities trading is the way to go. Unfortunately that limits you to palladium, platinum, copper, nickel, lead, zinc, tin, alumina, aluminium, gold and silver. Agricultural commodities too. Countries around the world are going to pay a price for their lax land utilisation in future. The Philippines and IndoChina would have to be the worst offenders. These countries seriously need to open up their land sectors. Anyone interested in farming in the Philippines Property Report. A day away from completion!

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Andrew Sheldon www.sheldonthinks.com

Matrix Metals (MRX) set to rally

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I am expecting a good rally in Matrix in the near-term, so I bought some at 6.8c yesterday. The compelling reasons for the rally will be:

1. The near-completion of the capacity expansion. The company is expanding copper production by 60%, at nominal capital cost.

2. The company is also drilling a VERY attractive anomaly, and I am expecting good results from that, and I dare say the market will be as well.

The negatives driving this stock down are the weaker global economy, which is of course impacting on the copper price outlook. The other point of weakness is the strong $A. We can expect the $A to remain strong as well since the RBA has to contend with the inflationary impacts of those strong capital inflows.
I am looking at minimum for a rally up to around 8c, though depending on the results it might do even better. It will take time to boost reserves. I think this is a good long term stock, but this is a market to trade it rather than invest in it.

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Andrew Sheldon www.sheldonthinks.com

Weaker market for the next few weeks

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I take the few that there will be a significant shake out of spec stocks in the next few weeks as we close out the tax year. We can expect people to take their losses so that they can apply them in future years. This applies particularly to fund managers. I also think the prospect of rising interest rates will impact on stocks before its underlying motive (higher inflation) justifies higher prices for gold stocks.
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Andrew Sheldon www.sheldonthinks.com