While most media attention seems focused on iron ore and the major operators, there’s a number of smaller players offering plenty of potential across a range of minerals. Here’s the WA Business News 10 mining stocks to watch.
While most media attention seems focused on iron ore and the major operators, there’s a number of smaller players offering plenty of potential across a range of minerals. Here’s the WA Business News 10 mining stocks to watch.
IT’S a brave man who can see a significant improvement in commodity prices next year, or a recovery in share prices at the junior end of the mining market.
Westpac Bank chief economist Bill Evans is one who can see the first part of the upturn; and while he makes no comment about share prices, he is a man with an uncanny knack of making accurate forecasts.
And, if Mr Evans is right about commodity prices rising by the 30 per cent he is tipping for 2013, then the second leg of the upswing will involve resources company share prices.
Not everyone agrees with Mr Evans, though he’s not particularly worried about that because daring to be different is something for which he is famous in the economics community.
Last year, he was the man who swam against the tide of fellow economists, predicting that interest rates would fall, rather than rise, in 2012.
The economics mob was wrong, Mr Evans was right. Interest rates have trended down, and look like falling further as business conditions tighten and demand for home loans slides lower.
This time around, the veteran of 21 years in the top economics role at one of Australia’s big four banks has set himself apart from his colleagues by tipping that 30 per cent increase in commodity prices for next year.
If he is conect with his commodity-price call, as he was with interest rates last year, then investors with an eye for resource stocks might be in for a better year than is widely expected, because higher commodity prices will flow directly into share prices.
What makes Mr Evans more optimistic than almost anyone else analysing economic trends is a view that China will emerge rapidly from its current bout of sluggish growth.
He believes that China will grow by 8.5 per cent next year, a pace which will re-start demand for commodities (and potentially embarrass a number of big mining companies, which have reacted aggressively to more negative forecasts, mothballing mines and sacking staff).
The knock-on effect in the Western Australian resources sector to the gloomy view of the world can be measured in widespread retrenchments by big miners such as BHP Billiton and Fortescue Metals Group, and a sharp contraction in the engineering and mine services sector.
VDM was the latest in a long list of construction contracting firms to pull back, announcing last week that 40 full-time jobs had been made redundant.
Other contractors, including Clough and WorleyParsons, share VDM’s view that tough times will continue into 2013, with recovery later.
For investors the challenge will be one of timing, because the market invariably looks six-to-12 months ahead. That means today’s downturn has been factored into share prices and the upturn to follow - even if not the full 30 per cent commodity-price bounce seen by Mr Evans - should start to be felt in share prices from early in the New Year.
If timing is a test, assessing opportunities among smaller mining companies is just as difficult, falling into the ‘wheat from chaff’ category given a choice of more than 1,000 small resources stocks to choose from.
To help with that selection process, WA Business News sifted through what’s available to compile a list of 10 small miners worth watching.
This is not a list of recommended investments, nor is it a list of the usual suspects. For investment tips, talk to your professional adviser. For the usual suspects read the daily papers, which only have space for a few of their favourites.
This is a list is of stocks that can slip through the cracks but have the key ingredients of good management, interesting projects, and solid financial support.
They range from small operators such as Fox Resources (with a market cap of just $24 million), which has announced a move into the coal sector, to established producers like Silver Lake Resources, which has plans to establish its third gold mine.
It also includes stocks operating offshore, from Papua New Guinea in the case of Marengo Mining, to Blackthorn Resources in Zambia and Miles Kennedy’s Lucapa Diamonds in Angola.
The commodity spread is equally wide, from copper and zinc to rare earths and titanium minerals.
Alkane Resources (ASX code ALK)
Market cap: $314 million
Commodity: Rare earths/gold
Operates: Australia
CEO: Ian Chalmers
FIVE years in the wilderness are coming to an end for Alkane, a company that has specialised in gold for more than 30 years, but is now shaping up as an important producer of rare earths.
First cash for the reborn stock will come from gold via the small, but reasonably profitable, Tomingley development near Dubbo in western NSW. The bigger game will be the Dubbo Zirconia Project, where Alkane has undertaken project design and feasibility work of a standard expected from a much bigger company.
Based on a virtually bottomless geological formation called the Toongi Trachyte, which is rich in a variety of rare metals including zirconium, tantalum, hafnium, yttrium, and rare earths, the biggest challenge has been designing a production process that maximises cash flows. That phase of work is almost over. Project development partners have been selected. An environmental impact statement is due soon and a final development decision expected next year.
On the market, the stock has fallen from a peak last year of more than $2 to recent trades around 84 cents.
Hot Chili (HCH)
Market cap: $108 million
Commodity: Copper
Operates: Chile
CEO: Christian Easterday
DESPITE its appalling name, which grew out of a joke about looking for uranium in Chile, the company is emerging as a potentially significant copper producer in that country. Key asset is the Productora project, which could host a 20-year mine yielding 150,000 tonnes of copper a year.
Recent drilling has continued to yield excellent copper and increasingly encouraging gold grades. A resources upgrade is due soon, followed by trial mining to test copper grade distribution.
In some ways, Hot Chili is a small company with a tiger by its tail, because Productora and its other assets in Chile are too big for a small company to develop, meaning it will either bring in a partner or become a tasty acquisition for a bigger company.
On the market, Hot Chili shares have slipped from 74 cents to around 47 cents after a recent capital raising.
The company raised $32.5 million through a two-tranche share placement priced at 50 cents per share. Most of the funds came from Taurus Funds Management, affiliates of Sprott Inc and Canada’s Lundin Mining Corporation.
Blackthorn Resources (BTR)
Market cap: $201 million
Commodity: Copper and zinc
Operates: Zambia
CEO: Scott Lowe
A HIGH flyer before the 2008 market crash, Blackthorn fell on hard times when work on its Perkoa zinc project was mothballed and its partner in a copper project in Zambia, BHP Billiton, walked away.
From more than $2 the company’s share price fell to less than 7 cents. Perkoa is back on track, though effective control has passed to the big commodities trader Glencore, and the Mumbwa copper project is moving quickly towards a development decision based on the Kitumba high-grade core where recent drilling has returned assays as high as 3.02 per cent copper over a whopping 202 metres.
It is the promised copper production in Zambia that has re-kindled interest in Blackthorn, which has reclaimed the $1 mark, and last traded at $1.22 - a handy rise for anyone who got aboard at the low point.
Fox Resources (FXR)
Market cap: $24 million
Commodity: Coal
Operates: Australia
Chairman: Terry Streeter
NICKEL and copper have been the backbone of Fox, but a potential move into coal is its most interesting development since listing 10 years ago.
For much of its short life Fox has tried to make money from the old Radio Hill mine near Karratha in the Pilbara, applying bacterial-leaching technology to the ore, but enjoying limited success. In a company changing move last month, Fox made an offer to buy a big parcel of coal tenements in Queensland, a sign that its chairman and major shareholder, Terry Streeter, is tiring of the Radio Hill project and sees an opportunity opening in coal just as others sell out.
Mr Streeter is one reason for watching Fox, given his success in turning Western Areas into a $750 million business. Coal is another, because however long it takes to make a comeback, Fox is entering via the bargain basement.
Lucapa Diamonds (LOM)
Market cap: $28 million
Commodity: Diamonds
Operates: Angola
CEO: Miles Kennedy
IF you have an appetite for high-quality diamonds (and an appetite for risk) there is no better place than the West African country of Angola, which is exactly where Lucapa is operating.
Known as Lonrho Mining until late last month, Lucapa is a return vehicle for Miles Kennedy, the man behind Kimberley Diamond, and a co-founder of Sandfire Resources until a falling out with other investors.
The early focus of Lucapa has been the Lulo project, which yielded an eye-catching 131.4-carat gem in August. That discovery accelerated the search for the diamond’s source, which is theoretically a kimberlite pipe within a five-kilometre radius, a calculation based on the rough edges of the stone, showing it has not been transported far.
Angola is not an easy working location, but it is rich in diamonds. On the market, Lucapa has fallen back from 1.7 cents to 1.1 cents after a recent capital raising.
Marengo Mining (MGO)
Market cap: $187 million
Commodity: Copper
Operates: Papua New Guinea
CEO: Les Emery
A HUGE project in the highlands of Papua New Guinea should transform Marengo from a small Australian company biting off more than it could chew into a world-class producer of copper, and its associated metal molybdenum.
In theory, the Yandera mine could be the first of a series developed by Marengo, or its successors over the next 50 years, such is the potential of the mineralised belt running along the company’s tenements. Discovered more than 30 years ago by BHP Billiton, Yandera has already been shown to contain 5 billion pounds of copper and 140 million pounds of molybdenum (a steel hardening metal).
A final investment decision on Yandera is expected next year with Marengo working closely with the PNG government and Chinese interests, which will provide the bulk of development funds and buy most of the copper.
On the market, Marengo has fallen from a peak of 30 cents earlier this year to recent trades around 16.5 cents.
MZI Resources (MZI)
Market cap: $63 million
Commodity: Titanium minerals
Operates: Australia
CEO: Trevor Matthews
ONCE a member of a small stable of companies controlled by mining entrepreneur Michael Kiernan, MZI is making brisk headway with a company changing mineral sands (titanium minerals) near Keysbrook on the outskirts of Perth.
The new project will be partly funded by cash flow from existing titanium mineral production on the Tiwi Islands near Darwin. Keysbrook should yield first minerals in early 2014.
The 49 million tonnes of ore rich in leucoxene (a form of ilmenite) and zircon will be handsomely profitable, a function of the location just 70km south of Perth.
MZI estimates that the project will cost $64.3 million to develop, achieve payback in less than 15 months, and generate an internal rate of return of 71 per cent during an initial mine life of 7.2 years.
Rex Minerals (RXM)
Market cap: $155 million
Commodity: Copper
Operates: Australia
CEO: Mark Parry
OWNER of Australia’s most scenic new copper project near the small South Australia grain port of Ardrossan, Rex has been struggling to attract investor attention in a sector dominated by news flow from Sandfire Resources and OZ Minerals.
Last week, Rex released a pre-feasibility study on its Hillside project, a development expected to cost $900 million and yield 70,000 tonnes of copper a year at a very attractive cash cost of $US1.20 a pound.
A final feasibility study will be completed next year, followed by a start on construction in 2014 and first copper in 2015.
In terms of its market performance, Rex has fallen back from a 2012 peak price of $1.74 to currently trade around 83 cents.
Silver Lake Resources (SLR)
Market cap: $777 million
Commodity: Gold
Operates: Australia
CEO: Les Davis
A PURE WA goldminer with expansion ambitions and a whiff of future copper production, Silver Lake has been a star since listing less than five years ago.
Early on, the company focused on high-grade ore using low-cost underground mining techniques, aided by a strong rise in the gold price. On the day Silver Lake listed, gold was trading at $US813 an ounce. It is now more than double that price, a trend that has enabled Silver Lake to expand at its Mt Monger centre near Kalgoorlie, start construction on a second gold-mining centre in the Murchison, plan a third near the south coast of WA, and merge with another Kalgoorlie gold miner, Integra.
The new Murchison operation might also be boosted by copper from the Eelya complex, where high-grade copper assays have been encountered. On the market, Silver Lake has risen from a 12-month low of $2.02 to recent trades around $3.45.
Troy Resources (TRY)
Market cap: $400 million
Commodity: Gold
Operates: Argentina
CEO: Paul Benson
SHAREHOLDER return has been the primary objective of Troy since it started life as a pure WA gold producer with deep Kalgoorlie roots. The same focus remains after the company shifted its primary operations to South America, initially in Brazil, but now as a significant gold miner in Argentina.
Despite a recent production hiccup at its flagship Casposo mine in the Andes foothills of that country, Casposo is showing every sign of becoming a world-class development as exploration spreads out across the tenement, chasing a classic epith-ermal vein system.
Investor interest in Troy is spreading from Australia to North America, where the company recently listed its shares on the Toronto Stock Exchange. Canadian and American investors have a much greater comfort level with mining stocks operating in their backyard, making Troy a red-hot takeover target.
On the market, Troy has dropped back from its 12-month high of just over $5 in early October to trade around $4.40.
