13/02/2007 - 22:00

Missed opportunities can cost

13/02/2007 - 22:00


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Regrets abound in financial markets, especially when share prices fall sharply. But what about shares that rise sharply; can anyone have regrets about that?

Well, yes, it is possible, if you sold shares in a company too soon, or listened to criticism about a business and failed to buy shares on the strength of that criticism.

The example that sticks with Briefcase is the curious case of Jubilee Mines, a particularly successful nickel miner, which has been one of the major beneficiaries of the commodity boom, and has the share price to show for it.

It might even be argued that Jubilee is the flip side of the infamous Sons of Gwalia case, which hit the headlines earlier this month when the High Court brought down a far-reaching decision in regard to shareholder rights.

In the Sons of Gwalia matter, a single investor, Luke Margaretic, argued that he had bought 20,000 shares 11 days before the company collapsed because he believed the miner was in a sound financial condition – a decision based on what the directors had been telling the market. Sadly, he was misinformed.

Until Mr Margaretic, backed by a litigation fund, took his argument to court, such corporate collapses spelled the end of the road for shareholders because they were not deemed to be creditors, such as the tax office, banks, and suppliers.

By giving shareholders the same status as creditors, the banking world has been turned on its head, perhaps to the point where the Australian government might have to consider a change to the law.

But, as Briefcase said, the Sons of Gwalia case was all about a company which plunged from $5 (and more) through the floorboards, and now lies in a cemetery somewhere.

Jubilee was different, but not totally, as anyone who attended the company’s annual meeting on November 3 2005 might remember.

Back then, the executive chairman of Jubilee, the blunt-talking Kerry Harmanis, hit back at critics of his executive board position, particularly the Australian Shareholders’ Association, and the accounting firm, Horwath.

The bean counters, in association with the University of Newcastle, ranked Jubilee as the worst “performer” among Australia’s top 250 companies when rated by the number of independent directors.

The ASA, a ginger group with no official standing of which Briefcase is aware, and which takes up the occasional cause perhaps without thinking too carefully about who it criticises, was much ruder about Jubilee and Mr Harmanis.

In fact, witnessing the exchange was a bit like attending a middleweight boxing match.

“Yes, we are sometimes criticised for poor corporate government,” Mr Harmanis said, “mainly due to the fact that some directors are deemed non-independent, sit on other boards, and that I am executive chairman…my comment to that is, so what”.

He went on, slamming outside organisations telling directors how to run a business, and saying that investors were free to invest elsewhere if unhappy.

Peeved at a target biting back so hard, the chief executive of the ASA, Stuart Wilson, told The West Australian newspaper that Mr Harmanis’ comments were a “slap in the face” to ordinary shareholders. Mr Harmanis’ “disdain” was quite telling, Mr Wilson was reported as having said.

But, after acknowledging Jubilee’s good performance, the best quote attributed to Mr Wilson was this: “So I think shareholders are going to have to keep [Mr Harmanis’] outburst in mind when considering whether to put more money with him.”

Now, Briefcase does not give investment advice (not allowed to), and it strongly suspects that the ASA is not licensed to give advice – but that comment from the boss of the ASA sounds awfully like advice.

What becomes really interesting is whether anyone who heard, or read about that exchange, and was in the process of making an investment, took the ASA’s criticism seriously, and did not put any more money into Jubilee. Because if that happened they would certainly be regretting their decision today, since while Jubilee might not score highly on governance, it has been a ripper investment.

On the day after Mr Harmanis and the ASA whipped each other with a wet lettuce (November 4 2005) Jubilee was trading at $6.10. When Briefcase looked late last week it was trading at $15.55, a 154.9 per cent gain which, for some potential investors, might now be classed as a rather large forgone profit now residing in the same cemetery as the carcass of Sons of Gwalia.


Unconformities, breccia complexes, and rollfront sandstones are not terms that slip easily into the conversations of most normal people; and perhaps they never will.

But serious followers of Australia’s great uranium debate had better buy themselves a geological dictionary, because that sort of jargon is on the rise as the uranium gurus embark on their mission of blinding us with their gobbledygook.

Last week, Briefcase copped several serves of ‘uranium speak’, and came away each time wondering whether it really needed to know how a uranium ore body was formed.

What it really wanted to know, and this is all that matters, is (a) whether the uranium share boom is real, (b) whether Australia is going down the nuclear road, and (c) whether the Australian Labor Party will drop its outdated three mines policy.

In reverse order, the only answer to the political change question is, who knows?

On the nuclear road question it is hard to imagine Australia not heading that way, if only because the rest of the world is, as countries seek a source of reasonably priced, non-carbon energy.

As a corollary observation it is worth noting that the world today has 435 operating nuclear reactors, and 158 more proposed, with the lion’s share (50) earmarked for China, a surprising 24 planned for South Africa – plus a further 18 in Russia (on top of 31 operating), 21 more in the US (103 operating), and 15 more in India (16 operating).

On whether the uranium boom is real, the answer is a very loud yes. And this is not because of anything happening among the explorers who have picked up a tenement which excited a scintillometer (Geiger counter) 30 years ago and which may, or may not, contain an ore body, but more because of what the big miners are doing.

BHP Billiton is expanding Olympic Dam, and Rio Tinto is drilling deeper at Ranger. These are Australia’s two biggest uranium mines.

But, careful reading of recent comments from BHP Billiton indicates that it might be dusting off the files on the mothballed Yeelirrie project in WA, acquired in the 2006 WMC takeover, and that Rio Tinto is definitely dusting off the files on its mothballed WA project at Kintyre.

Activity among the speculative stocks is one thing. Movement among the elephants is something far more significant.


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