ARTICLE:'Very savage' economy masked by resources boomRobin...

ARTICLE:'Very savage' economy masked by resources boom
Robin Bromby
March 25, 2013 12:00AM

ARE you one of those speculative investors who have been forced to liquidate holdings to meet living expenses?
If so, you are not alone. Sydney-based Paradigm Securities believes this is happening and has squeezed out speculative expectations from resources stocks.
Barry Dawes tells his clients anecdotal evidence suggests the economic situation in this country is "very savage" but is being masked by the resource sector's performance. The "punters" are hurting, he says. But it is not just the juniors that have given up so much ground.
"The fact that larger resources companies have been hit just as hard and that institutional funds are not picking up stock continues the uncertainty," says Dawes.
It's not just Australia: the Philadelphia Gold Index and the Toronto's Venture exchange index have also seen sharp falls.
Dawes sees it as perverse that underlying commodities are holding reasonably well but resource sector stocks have still been sold down. But views might differ about what is "reasonably well"; so far this year, zinc and aluminium are down 7 per cent, lead is off 6 per cent and copper has fallen 4.4 per cent.
It may depend on whether you are looking at the short or long term. Base metals finished the week in the black. Aluminium and copper put on 1 per cent in Friday trade to close at $US1947 a tonne and $US7655/tonne respectively.
The longer term, if the analysts at Perth-based Hartleys are right, may not be so rosy. They have put out their latest commodity price assumptions. Now, these are not predictions by Hartleys but are based on consensus figures across the sector on the basis of which they analyse stocks.
So here is the consensus on what Hartleys terms "long-run assumptions", beyond 2016: gold at $US1188 an ounce, silver $US20/oz, copper $US5972/tonne, nickel $US20,055/tonne, tin $US20,000/tonne, iron ore $US80/tonne, thermal coal $US93/tonne, uranium $US61 a pound and oil $US90 a barrel.
Not the sort of projections to make speculators cheer up as they head into another uncertain week.
This is not say some companies won't perform. Hartleys has also updated its 12-month price targets on stocks it covers. The ones that have the greater upside include Attila Resources (AYA), which during the week upgraded its coking coal resource in Alabama. The stock closed at 70.5c but Hartleys sees it at $1.69 over 12 months.
In this space last week, we drew attention to Celsius Coal (CLA) and its Kyrgyzstan coking coal. The stock closed at 2.3c on Friday but the analysts are calling an 8.3c target a year from now. Gold and uranium may be out of favour, but this does not deter Hartleys; it expects the share price of Gold One International (GDO) -- which has both -- to go from the present 25.5c to 67c, with an accumulate recommendation. Greenland explorer for the galvanising metal Ironback Zinc (IBG) is forecast to rise from 6.4c to 29c.
Mineral sands explorer Sheffield Resources (SFX) is seen rising from 69c to $1.58.
This may be helped by what another firm, Foster Stockbroking, sees as an indicator of positive news for mineral sands prices. On Wednesday, World Titanium Resources (WTR) -- the former Bondi Mining -- rose 45.4 per cent on news that China's Sichuan Lomon Titanium would stump up the required $US300 million ($288m) to develop WTR's Ranobe project in Madagascar.
Foster said the move was seen as "even more striking (considering) that it is a Chinese partner given the recent market concerns over China's crackdown on speculative property investment and how that may be negative for zircon pricing".
On the back of this, Foster put out a note on Friday giving Iluka Resources (ILU) a $12.65 a share price target. The stock closed at $9.20.
Big data
IMAGINE getting hold of exploration records equivalent in size to the most recent printed edition of the Encyclopaedia Britannica. Adelaide Resources (ADN) has done just that, acquiring a report of 23,800 pages which includes all the old data from those former giants of Australian mining, Western Mining Corp and North Broken Hill.
They, along with what was then BHP, Mount Isa Mines, Broken Hill South and Phelps Dodge, iconic names all, were at various times between 1959 and 1987 joint venture partners in drilling around the towns of Moonta and Kadina on South Australia's Yorke Peninsula.
The junior is digitally copying all this information now held by the South Australian Mines Department, data which MD Chris Drown says would cost more than $20m in drilling to replicate today.
ADN says the records covering the company's Alford West project show high-grade intercepts -- importantly, at shallow depths -- including 29m at 1.07 per cent copper and 12m at 2.22 per cent.
All those majors were looking for the size of giant deposits to justify their corporate goals. Adelaide Resources, by contrast, is happy to settle for less and still hopes to do well.
However, this junior has seemed to be on the brink of something big before.
In November 2005, it announced a rich zircon discovery which sent the stock soaring to 72c. Three years later, Adelaide sold its stake in that project to Iluka for $5m. ADN closed on Friday at 4c.
CAP showdown
IT will be showdown time on Wednesday for Carpentaria Exploration (CAP) when shareholders meet to vote on removing the company's driving force, Nick Sheard, and three other directors and effectively put the company under the control of Hong Kong-based Wilson Cheung, whose company holds 19 per cent of CAP.
At stake is the control of the $3.2 billion Hawsons iron ore project near Broken Hill.
We note that there's been plenty of buying activity, the stock rising from 17c in early March to as high as 32.5c.
And a dissident group who say they need to save Papua New Guinea copper-gold-molybdenum explorer Coppermoly (COY) is seeking to sack the entire board and bring in new directors. This column three years ago marvelled at the potential of the New Britain island ground but some shareholders have clearly become impatient. COY is worth just $6m.
Gold alert
A SIGNIFICANT ground-shift could be coming for some of Australia's biggest goldmines.
If you have not already seen Pure Speculation's Friday online alert on this, check it out on The Australian's website.
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The writer implies no investment recommendation. This report contains material that is speculative in nature. Investors should seek professional investment advice. The writer does not own shares in any company mentioned.