Australian mines going down the shaft

THERE is more than a touch of the romantic about mining prospectors if the names they give their finds is any indication. In Western Australia alone we have Alice Hill and Dawn’s Hope, Laura River and Lady Irene, Little Darling Creek and Mount Doreen.

Romance yes but money no. Veteran resources editor Ross Louthean says in the hot-off-the press edition of his 517-page Australian Mines Handbook: “What stands out for the Australian resource sector is a huge dive in exploration dollars. The barely warm interest by the market in the raising of fresh capital means that the country’s mining inventory of the future is under challenge.”

According to the Minerals Council of Australia, only $344 million was spent by our miners on exploration last year, down from $506 million three years ago.

If punters are unwilling to back the prospectors, and local fund managers give resource shares the cold shoulder, it is small wonder that our mining companies are being carted away by the South Africans and British. AngloGold is likely to snare Normandy Mining for $3.2 billion in paper. Acacia Resources has already gone to Anglo and it is a matter of time before Delta and Lihir go under the hammer. BHP has been “merged” with Billliton. London-controlled Rio Tinto has swallowed North Ltd and Ashton Mining. Western Mining has all but hung a “for sale” sign on the front door.

The consolidation of Australian assets in global hands means less exploration, because the huge new owners will choose to put most of the dollars in greener overseas pastures, with more certainty of access to land and a friendlier tax man. Australian junior miners have little or no hope of raising the wind.

Mr Louthean recently returned from a trip to Canada, where he saw how a government-backed “flow through” scheme is helping small miners. They get a tax break on exploration costs to enable them to keep going. And investors in the companies get tax advantages too. The Australian industry has been begging for such a scheme. Canberra is apparently not interested in a healthier resources sector.

So are there any rays of light for what is still our biggest export earner?

“Base metals face a bleak immediate future,” says Mr Louthean “ but there is some hope for the price of gold, given further weakness in the US dollar. The quest for diamonds has been rejuvenated, with BHP Diamonds showing interest, and two small companies to watch are Tawana Resources and Thundelarra Exploration.”

This week brings a crucial stock market test with the $2.3 billion float of coal giant Enex Resources, which is being spun off from its Swiss-based Glencore International.

The IPO, the biggest since Telstra here, and one of the largest in the world this year, comes amidst the shot and shell of crashing global share prices. A tug of war is on between traders who believe the float has come at the top of the price cycle for coal, and others who believe there is a lot more to go for.

An institution bookbuild is under way at between $4 and $5 for each Enex share. The indications are that the price will be struck towards the lower end of the range. That could mean a tasty fully franked yield of over 8 per cent for retail investors who have put up their hands for well over 100 million shares, and will pay the price fixed by the professionals. Dealings in Enex will start on Monday September 17.