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Optimistic reaction to profit results

THE Australian share market is now six weeks into an eight-week profit-reporting season and with over 90 per cent of companies already reported, investors are looking forward with confidence about full-year prospects.

Analysts are speculating that the market cannot be disappointed with the reporting season so far as there have not been many post-result downgrades. There has been a relatively optimistic reaction to profit results so far, with expectations that companies will have better results in six months’ time.

Fund managers also are comfortable, as the general earnings from domestic-based companies such as Wesfarmers, Woolworths and Smorgon Steel have been very strong, compared with Australian companies with strong offshore operations, like Brambles and BHP Billiton.

According to a recent analysis, the results so far have shown 28 negative surprises, compared with 46 positive surprises and 62 reports in line with expectations. The same analysis believes market earnings growth will be built around growth from bellwethers Wesfarmers, Woolworths and Telstra. In fact, the pattern of growth and the stocks contributing to growth for this year will be similar to 2001.

Platinum Australia Limited

Platinum Australia is an exploration company based in the Kimberley undertaking a bankable feasibility study on its Panton project. The Panton Project is located north of Halls Creek and contains a deposit of both platinum and palladium.

A new resource grade is due in two to three weeks, with an expectation of an increase in the resource. The bankable feasibility study is on target to be completed by the end of June 2002. While both these events will help shore up interest in Platinum Australia, the real test will be the release of the preferred metallurgical route that Platinum will follow.

This announcement is due within the next two months and will be widely anticipated. Platinum Australia is currently involved in running preliminary pilot plant tests using major shareholder Lonmin PLC’s plant in South Africa. Next month the final pilot plant tests will be run along with the open cut and underground ore samples in a South African laboratory.

Around the same time, Platinum Australia will start project financing talks with the relevant parties. The uncertainty relating to the project and its commissioning concerns major shareholder, Lonmin PLC. Assuming the Platinum Australia board approves the feasibility study and project financing, Lonmin has exactly 10 business days to decide on a further investment in Platinum Australia.

In May 2001 Lonmin invested $12 million, with an entitlement to invest a further $40 million subject to certain conditions. Most of these conditions will be met in the first half of this calendar year, and the future prospects of Platinum Australia tend to hinge on Lonmin’s thought process.

Investors keen to buy into Platinum Australia at these levels, currently trading at 49 cents, would be well advised to keep a close eye on announcements made by the company over the next two months. The real issue is the metallurgy.

The recoveries will be the most important consideration to see if the deposit is economic. Early indications have been that the laboratory work will provide a positive result.

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