Adventurers bring mixed bag

RED Back Mining boss, Ross Ashton, has been flogging a horse called Chirano for so long that most people have lost interest.

In early November,  he even performed what looked like an enormous dummy spit when announcing a merger with a Canadian company,  a shift of head office to Vancouver and a bold declaration that Chirano, a gold project in the west African country of Ghana, would be better appreciated by North American investors.

Australians, bored with the non-appearance of a mine at Chirano after five years of promises, displayed more of their disinterest in African mining assets by cutting the Red Back share price when the merger with Champion Resources was announced. So much for adding value.

The reaction of the market was such an extreme reversal of what Ashton had expected that he immediately cranked up the public relations machine, dashed out more pleading press releases and organ-ised a briefing by the president of Champion, Richard Clarke, in Perth.

Yawns greeted Clarke as they had Ashton.

The Red Back share price, which had risen as high as 67 cents in the days before the Champion deal was announced, managed a very modest 2 cent up-tick to 57 cents – which is much better than the 11 cent fall on November 5 as a first reaction to the announcement of the merger.

Unfair treatment, ignorance and fear of foreigners is the essence of what Clarke and Ashton are saying about the market’s treatment of Red Back – and they might be right. Briefcase, which has displayed the same amount of disinterest in Chirano as everybody else, thought the situation deserved a closer look, but not necessarily by trying to assess the value of Chirano.

Gold mines in unknown parts of a dodgy continent are always hard to assess.

Something a little easier is to look at the way the market is treating another Australian company, also with a gold prospect in Ghana.

While Red Back, with a mine close to development, is being ignored, Adamus Resources can do no wrong, even though the best it can talk about is an exploration play, admittedly a good one, but exploration nevertheless and not a mine which is close to development.

Over the past month, while Red Back shares have been in limbo, Adamus shares have risen from 67 cents to $1.31 before slipping back to $1.16, largely as a technical adjustment because the company bedded down a placement of 3.65 million shares at $1.10 to raise $4 million in cash.  The new money will be spent largely on the Salman gold prospect, which has revealed excellent drill results of up to 56 metres at 7.5 grams of gold a tonne.

But, the real test is not in the share prices. It lies in the market value of the two Perth gold companies.

Red Back, with 132 million shares on issue is capitalised at about $79 million.  Adamus, before the placement, was valued at $70 million. Get the message?

Two companies, same commodity, same foreign country and roughly the same value, despite Red Back’s Chirano project having cleared environment hurdles and being in the final stages of securing government mining approvals that should see it producing 130,000 ounces of gold for at least six years, and probably a lot longer.

Adamus, on the other hand, has a terrific little exploration play on its hands – but is yet to confront the bureaucracy of Ghana.

The moral of the story is that Ashton has overdone his attempts to promote Chirano, observers have missed the turn and that the market is guilty of either overvaluing Adamus, or undervaluing Red Back.

Briefcase, with a classic hedge-your-bets stance thinks it is probably a bit of both though Red Back certainly looks to be over-ripe for a re-rating – once the hard sell is eased and the market can be left to make the discovery of an emerging gold producer on its own.

SPEAKING of Aussie companies in funny places, is Briefcase the only observer of the market to notice the rise (and rise) of the share prices of small miners operating outside Australia.

Adamus and Red Back are just two examples.

Last week also saw a 32 per cent jump in the share price of Tawana Resources which says it is onto something big at its South African alluvial diamond play courtesy of BHP Billiton’s Falcon gravity measuring tool.

Dragon Mining rose by 21 per cent on news from its Svartliden gold project in Sweden. Equinox, which has copper exploration projects in Zambia, was up 20 per cent and County Diamonds, the mis-named gold explorer with interests in China, rose by 18 per cent.

Other local explorers with their assets in Australia also had a better week after the early October shake-out, but the rising comfort level among investors in stocks with foreign assets is an interesting phenomena, and not one which Briefcase wholly approves.

The last mining rush about 10 years ago produced a similar stampede into exciting places.

Chile, Peru, Cuba, Uzbekistan, Zimbabwe and the Congo attracted considerable attention, for a while.

It was only after the small Australians tried to do business on a serious level, rather than just opening an office and parachuting in a few geologists, that reality dawned and the Aussies discovered that they were babes in some very nasty woods. Most of the last crop of foreign adventurers returned minus their capital.

Perhaps history will be different this time around though it strikes Briefcase that the best places to explore and develop mines is in countries with strong laws, clean water, attractive geology, skilled technical capabilities and good beer – somewhere like Australia.