-- Posted 23 February, 2004 | | Source: SilverSeek.com
Although the initial move proved to be short-lived, silver has already breached my 2004 upside target of $6.80. Some recent USD strength ignited some profit taking in the precious metals arena, with silver dipping 14c to $6.49. In my 2001 publication, “The Green Room A Guide To Speculating On the Australian Stock Market” I reviewed a number of market sectors and came to the conclusion that silver was the standout. Whilst I managed to underestimate the powerful rally occurring in commodities and the revival of the PGM’s after strong performances from 1998-2000, the fundamentals for silver remain compelling with limited opportunities on the ASX at present likely to exacerbate the upside potential once Mr. and Mrs. Mainstream come along for the ride.
I am expecting some damage in the junior resource market come Monday, however with fairly severe corrections already experienced I expect a competitive atmosphere in terms of accumulating situations I would rate as being oversold in the short-term. The stop-start nature of the resources bull market in Australia has managed to cool things down when events started to get heated, and whilst we are yet to witness similar performances to the Canadian juniors the Australian speculative blow-offs are well worth attending when they finally occur.
THE DAILY DOUBLE BUTLER AND GATA
After reading a number of precious metals sites before deciding to have a crack as a writer, I admit to many sleepless nights and having partly filled Coke bottles littering the floor and desk as I managed to absorb as much information as chemicals. As I started to churn out numerous articles, I realised that I was getting bogged down in conspiracy theories, which for the better part were starting to do my head in totally. We tend to delve too deep in them, rather than work out strategies and individual stocks where we may indeed benefit if it takes hold.
The fact GATA are now backing the inspirational Ted Butler we now have a team quite capable of causing a quite a stir in the investment community.
When you have assets that are historically cheap where the price action is contrary to simple supply/demand fundamentals you have the potential for significant price appreciation. Whether it is Buffett, the Chinese or the local U10 AFL team the fact remains the silver price is heading in the right direction and recent activity would suggest that the participation rate might also be slowly turning around.
The major bonus with silver however is that Warren Buffett is stealing the limelight as I am sure people on the streets are not discussing that Australian writer Locantro and his views or the returns being generated by a number of small resource funds over the last 12-18 mths. Markets love a dash of celebrity and when you throw in GATA, Butler, Sinclair, Morgan, Buffett, Soros and Gates you can feel this tidal wave of silver related publicity building ever so gradually.
AUSTRALIAN SILVER JUNIORS
The best description I could give in terms of a mature market is to walk down and a take a peep at the aisle that houses tuna products in your local supermarket. That is my idea of saturation, and when we start witnessing a similar explosion in derivatives related to silver one would hope to be gearing up for the grand finale. Apart from Malachite Resources in late 2002, and more recently Tri-Origin there has been little in the way of choice for Australian silver investors apart from Macmin Silver which has enjoyed not only first mover advantage but also acting like a vacuum for overseas funds keen to benefit from our attractive currency at the time and the more importantly the opportunity to purchase a stock which was trading between 5c-7c.
I have covered the fundamental outlook for silver in a previous article titled, “Silver SWOT Analysis” and with the increase in coverage due mainly to GATA I would be only providing readers with information they already know. Before I cover a number of silver juniors I want to make it clear that my client base have holdings in the stocks listed (some from much lower levels), and I am not remotely interested in short-term movements or technical analysis for that matter.
Fundamentals can take stocks/commodities to certain levels, however it is normally the move towards fair value that leads eventually to overvaluations and the creation of a nasty pyramid scheme that drags many out from under their rocks. Silver may well end up being no different regardless of its myriad of uses in technology and medicinal applications, the fact remains many will take advantage of the green eyed monster that exists in all of us to again fleece the vast majority of investors.
In reality silver and gold for that matter have barely moved, and whilst we have to contend with $10+ falls in the yellow metal and having 30c taken away from silver in quick time, major upward moves are always going to lead to some nasty swings to the downside designed specifically to scare investors out the market so they are again fighting a similar battle three cycles from now.
TRI-ORIGIN MINERALS (TRO) 24c
After listing on January 9, 2004 Tri-Origin’s share price has held firm providing ample opportunity for those that took up the 20c shares to exit at a reasonable profit regardless of volume. From first appearances TRO gives the impression of being a “Class Act” from the wealth of experience of the board to their asset mix in the Lachlan Fold Belt of NSW. On a fully diluted basis (40m shares out of escrow in January 2006) the market capitalisation at current levels in the vicinity of $17m with $5m in the bank with two projects that offer excellent exposure to a rising silver price.
The indicated silver resource at Lewis Ponds stands at 5.7mt @ 97 g/t for 17.8m ounces of silver with 350,000oz of gold and significant lead and zinc mineralisation. At Woodlawn a pre mining resource of 18mt @ 80 g/t silver existed, and at mine closure in 1998 a resource of 1m tones remained. The project remains prospective for extensions near old workings and on a regional basis in terms of similar style deposits. TRO in their prospectus and ASX releases have re-iterated that they are aiming to double the resource at Lewis Ponds through exploring a number of higher-grade shoots, and combined with the potential at Woodlawn the $17m market capitalisation would certainly appear cheap in comparison to other stocks in the sector.
Based on a combination of factors including management, structure, and growth potential I rate Tri-Origin as my top selection in the Australian silver sector.
(I have a direct/indirect interest in Tri-Origin Minerals)
MACMIN SILVER (MMN) 20.5C
In terms of profile Macmin Silver would be the envy of a number of companies listed on the ASX. For many silver bugs ownership of the stock is compulsory and despite the desire of many to hold for the longer-term liquidity has never been an issue. In terms of market capitalisation with the 12c 2005 options now deep in the money, MMN is nearing the $80m level. Estimated resources for the Texas Silver Project stood at 7.85 mt @ 64.6 g/t, and 19.1mt @ 51.1 g/t for a regional resource base of around 47m ounces of silver.
Macmin also have investments in New Guinea Gold Corporation, Tasgold (TGD) and Malachite Resources (MAR). On the 23 January 2004 Macmin’s investments were worth in excess of $12m with New Guinea gold accounting for $11,613,000.
Exploration at Mt Gunyan (announced in December 2003 qtr report) included 34m @ 333 g/t silver including 10m @ 849 g/t. In the Chairman’s address (November 2003) it was stated that a silver price above $9 AUD ounce was required for Macmin to move closer towards becoming a silver producer.
MALACHITE RESOURCES (MAR) 22.5C
MAR listed in November 2002 as the first silver focused IPO to hit the ASX in years. The initial period post-listing would have been quite an experience for those who subscribed at 20c with the share price trading heavy volume in the 11c-13c range as a significant holder exited the stock. Prior to their ASX listing Malachite had built a solid portfolio of tenements prospective for silver including, Conrad (previously produced 3.5m oz at 600 g/t), Rivertree (historical production up to 1200 g/t) and Boonoo Boonoo. Whilst initial exploration at their silver projects has shown some encouragement, progress has been restricted due to title issues, and as a result further exploration at Conrad has been put on hold whilst Malachite cranks up the exploration effort at their Tooloom Gold Project, which according to the company could host a multi-million ounce gold deposit. Malachite is also in the process of assessing an alluvial tin project with the aim of attaining an early cash flow to assist with exploration expenditure. I can understand Malachite’s enthusiasm surrounding Tooloom and the desire to inject significant funds into the project, which could well provide the catalyst for a “New England Boom” which would have a significant on the other gold/silver juniors in the region. Straits Resources recently took a placement at 20c and have crept to just under 5% of the issued capital in MAR. Whether or not this placement is a strategic investment for Straits remains to be seen, however the initial results from Tooloom have not gone totally unnoticed.
Malachite’s market capitalisation of $8m is conducive to share price appreciation driven by exploration rather than movements in the spot silver price. The timing in relation to gaining further access at Conrad could be quite fortuitous for the company over the longer-term.
(I have a direct/indirect interest in Malachite Resources)
GOLDEN CROSS RESOURCES (GCR) 8.5c
In terms of exploration Golden Cross would rank as one of the most active juniors in the country with ten GCR projects subject to exploration activity in the near-term. GCR’s silver exposure is the Kempfield silver-lead-zinc-barite deposit in NSW where the silver resource currently stands at 11.4m ounces (95 g/t). The stock is capped around the $15m mark, is fairly liquid and is largely news driven in terms of exploration results. A share purchase plan recently raised $1.9m at 8c and stock coming out of the SPP plan (the parcel sizes and selling brokers give it away) has kept a lid on the share price over the last two weeks. GCR has been highly rated by resource analysts since listing in 1996 at 40c and could well be setting itself up for a very interesting 1H in CY 2004.
BOLNISI GOLD (BSG) 37.5c
BSG’s share price was recently re-rated on the back of promising silver/gold exploration results from their Palmarejo Project in Mexico. Some highlights included 15m @ 2 g/t gold and 433 g/t silver. A 1.5m intersection included 18.8 g/t gold and 3290 g/t silver. Drilling is expected to continue at Palmarejo in early March 2004. BSG’s other assets include the Georgian Gold Project, and interests in two joint ventures at the Roseby copper-gold project in Queensland with Universal Resources. On a fully diluted basis (the BSGO’s expire in 2004) BSG has a market capitalisation of $103m.
ANVIL MINING (AVL) 49c
AVL’s Dikulushi Project in the DRC is a high-grade copper-silver resource where the silver component in October 2003 stood at 11.1m ounces of silver @ 201 g/t. AVL’s copper resource consisted of 123,600t at 7.18% copper, and during the December 2003 qtr 3,074t of copper and 331,555oz of silver was produced (silver grade at 224 g/t). The cost of copper production (after silver credits) came in at 51.4c US per pound.
MOUNT CONQUEROR (MCO) 7.5c/ CENTRAL WEST (CWG) 19C
MCO and CWG are joint venture partners exploring the Boorook gold-silver project in the New England region of NSW. In the June qtr 2003 the companies announced a 3m intersection at 103 g/t gold with a 2m hit at 22 g/t gold. Initial follow up results were disappointing however the share prices of both continued to rally. Further exploration was carried out in January 2004 with results pending. Both stocks have miniscule market capitalisations despite both announcing recent placements. MCO’s market capitalisation is in the $4.5m range, whilst CWG is just under the $3m mark. Both stocks have a tendency to go through lengthy periods of inactivity with significant rallies over the years largely a result of maintaining very tight capital structures. Up until the recent issues Central West Gold only had 13m shares on issue despite listing in June 1987.
Disclaimer: I have direct/indirect holdings in the stocks listed/mentioned above. Clients have considerable holdings in each of the stocks and may change these holdings without notice. The information on each stock has been derived from ASX reports, and company discussions. Each of the stocks listed is to be considered as speculative, and may not be appropriate for individual investors. No buy recommendations have been provided on the listed stocks, and the opinions on each are those of the author only. It should also be noted that some of the stocks may have very low levels of liquidity and may result in significant percentage rises and falls. Please conduct further research and consult your financial advisor before making an investment/trading decision.
About the Author
Tony Locantro is a Perth based Senior Private Client Advisor specialising in the junior resource market. He is the author of "The Green Room, A Guide To Speculating On The Australian Stock Market" (available free to prospective clients via email request) and presents on resource stock investment. He has been a contributor to a number of precious metals and market related forums.
If you would like further information or are interested in becoming a client I can be contacted at locantro@iinet.net.au
-- Posted 23 February, 2004 | |
