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Pundits miss golden prospect

GOLD is finally having its day in the sun. Some believers thought they might be carried into the cemetery before they saw it rise again. This columnist regularly harangued readers on the merits of the metal, before he too threw in the towel. Gold, said the pundits, would no longer be a safe haven and storehouse of value, but was just another commodity – no more than coal painted yellow.

The Australian Stock Exchange announced plans to abolish its gold index. Such unanimity of bearish opinion was tailor-made for contrarian investors. The S&P/ASX Gold Index climbed 25 per cent in May.

The surge in the gold price to $US330 an ounce has been driven by a confluence of four factors. Bloody events in the Middle East, nuclear war fears in South Asia, the threat of more terrorist attacks on American soil, and the abject retreat of the US dollar. None of these is likely to go away in a hurry.

Japan imported more than 32 tonnes of gold in the first quarter of the year, equivalent to half of Australia’s falling production in that period. Holders of gold in India and Pakistan are not about to sell. Nor it seems, is anybody else.

That is good news for North American and South African mining houses that have swooped to snaffle up our leading gold companies.

Why have Australian institutional investors shunned our gold shares, while foreigners regarded them as dirt cheap? One answer comes from Ken Goode, a top analyst at Eagle Research. He explains that most valuations of gold companies are based on the size of the ore reserves, which in Australia face the most stringent classification in the world. This is due to ancient requirements for drill hole spacing, and is not fully understood. Most of Australia’s underground ore resources are actually equivalent to North American classified ore reserves.

“That is why they offer such value and can be bought for a song,” Mr Goode says.

Doyen of the gold industry, Croesus chairman Ron Manners, is calling on small companies to consolidate and wheel their wagons into a circle. The idea is to fend off raiders, or at least extract maximum value for their shareholders should they fall to a foreigner.

If AurionGold is mopped up by the current $2 billion bid from Placer Dome, or a rival offer, the Australian gold industry will become almost 70 per cent overseas controlled.

However, since these big takeovers are scrip based, Aurion shareholders could wind up with nearly 20 per cent of Placer, which is valued on the market at $8 billion. Normandy shareholders have a similar stake in the giant Newmont group following their sell-out last year.

Already we can hear the frantic hammering of little gold exploration companies being assembled, ready to be floated off to the public. Some will be sounder prospects than others. Watch out for the golden fleece.



Show gets a right royal push to the East

SOME cockies might consider brushing up on their Cantonese and Mandarin speaking skills before attending the Royal Show at Claremont in September. In what is billed as a new ‘guest nation’ concept, the feature will be a China pavilion. Exhibitors from China will be displaying their tourism, fashion and light industrial wares. In what amounts to a mini expo, Western Australians will be promoting agricultural and other goods to the Chinese.

Two executives from the Beijing-based Genertec advertising and exhibitions concern visited Perth in April for talks with the Royal Agricultural Society. There will be a strong Chinese theme to the entertainment held each evening in the revamped main arena. The guest nation is part of a push by new chief executive Bruce Rathbone to broaden the appeal of the royal show to attract visitors from the Asian region – with near neighbour Singapore a prime target. Expanding the event from the traditional show bags and sheep dip extravaganza into exciting new areas is designed to attract more youngsters in their 20s to the show.

The China pavilion is being backed by the Department of Industry and Trade, Austrade, the Chinese Consulate and the WA Tourist Commission. Trade between China and WA is worth more than $3 billion a year, the bulk of it in exports. With China now a member of the WTO, and big tariff cuts on the way, you have to be in it to win it.

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