13/08/2008 - 22:00

Iron ore developments to play out

13/08/2008 - 22:00


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The iron ore sector has changed remarkably in the past few years.

Iron ore developments to play out

The iron ore sector has changed remarkably in the past few years.

Not long ago, apart from the major diversified mining companies such as Rio Tinto Ltd and BHP Billiton Ltd, there was little else.

Portman Mining Ltd was one of those rare players, a lonely minnow barely noticed in a pool where only whales swam.

But things have changed.

Fortescue Metals Group Ltd is the best-known newcomer. Having defied the market's odds and become a real miner, it is now taken seriously by the majors who worry about it muscling in on their territory, let alone their infrastructure.

But below FMG there is a host of smaller players, some of them actually mining but most still developing projects of all different sizes.

Many are in the Mid West; and while relatively small in the grand scheme of things, they expect to find ready markets for their production.

There is also Grange Resources Ltd in the Great Southern region, which is something of the odd one out in this geographic spread.

But the real action is in the Pilbara, where developments aplenty are being spruiked, some at an early stage and others much later.

I have been excited by these developments. It makes iron ore a far more interesting sector.

The change brought activity more akin to what we've seen traditionally in areas such as gold, with claim jumping, extraordinary takeover activity and a lot of speculation around the quality of deposits.

Not all of this is good, of course. There is much to be said about avoiding some of the hype and share ramping that has clouded the trading in resources stocks in the past, and given Western Australia much of its cowboy reputation.

This is to be expected.

Iron ore is relatively new in terms of the market's understanding of it. That offers plenty of opportunity for investors to miss the nuances of exploration data.

I'm no expert, but I've been told there's a rising tide of geological reporting that offers investors scant information about what resources really may be held.

The same can be said for news on deals with various offshore groups, usually Chinese.

Who knows whether this is bluff or bravado? With iron prices quadrupling in US dollar terms in just a few years and doubling almost overnight (see graph), it makes sense that company promoters want to get the best news out they can to capture investor sentiment at its height.

But there are plenty of people telling me the hype is way overdone and, when iron ore eventually reconnects with the rest of the market, there could be some big losers.

We see it every time with these investments. Historically we know that, in bubble scenarios, the dodgy promoters use the grapevine to excite interest in their stock, offer information that is less-than-credible once closely examined and look to feather their own nests in creative ways as they make the most of investors' herd mentality.

I'm taking a keen interest in this area.

Election options

AFTER last week's surprise announcements of a leadership change for the Liberals and an election on September 6, I thought it was time to briefly cover off on this.

As with many elections, the choices are not that inspiring.

I've found the Labor government to be restrained in what I felt would be the normal excesses of the left, but three things have bugged me.

Firstly, I think they've become secretive - obsessively so - a trait that doesn't bode well for people who claim to be accountable and transparent.

Secondly, I am disappointed they haven't reined in taxes, such as those on property transactions and payroll tax, and moved to link brackets to CPI to make them fairer.

Thirdly, the Labor vision has been city-centric and consumer-focused. Industry has got some of its cultural demands, but seen too little of the regional focus needed to make the most of the boom we are enjoying.

The question for me is whether the Liberal Party under Colin Barnett can improve these areas.

Mr Barnett is considered a thinker and there's no doubt he has big visions for regional WA. But he also has legacy issues that will leave him vulnerable in a campaign.

In energy, water and industrial development he had his chance to set foundations for his vision for the state when he was the key minister in the last Liberal government. I don't believe he achieved that.

However, that was eight years ago, and the current government has not done that either, despite huge events such as the terrorist attacks in New York changing the world we live in.

It seems governments get stale after two terms. The question is whether Mr Barnett offers a truly fresh approach as a contrast.

My gut feeling is that Labor is on the nose but not enough for a Liberal win, especially after its poor performance of the past year.

It will take an extraordinary campaign - filtered through Olympic noise - for Mr Barnett to pull this one off.



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