08/02/2005 - 21:00

Tim Treadgold: Briefcase - Another ’80s ending coming?

08/02/2005 - 21:00


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The boom, which we are all enjoying immensely, appears to be entering a new phase – or is it?

The boom, which we are all enjoying immensely, appears to be entering a new phase – or is it?

On the one hand we have mining shares soaring to new heights thanks to the so-called "paradigm shift" caused by China's insatiable demand for raw materials. We are hailing ourselves as the wealthiest generation in Australian history and conspicuous consumption in the form of lavish parties and flash cars has become the order of the day.

On the other, anyone older than 40 and without impaired mental faculties, will have this queasy feeling that they have seen it all before – and the reason they feel like that is because they have.

Sometime around 1986, or the first few months of 1987, there was a similar period of riotous behaviour on the stock market, appalling acts of gluttony in its many forms and paper wealth the likes of which had not been seen in a generation.

Right now it is a case of spot the difference with those heady days that ended in tragedy on October 19, 1987, when the sky fell in for countless Australian companies and the world changed for those with paper wealth.

If in doubt, consider some of the evidence. Last week saw the return to the public spotlight of Peter Briggs, a delightful rogue who can be the most charming of lunch companions. He is also an ex-jailbird, having served time for overlooking his tax bills.

Briefcase has no beef with Peter. He actually quite likes the old chap. But, when a man like Briggs makes a high-profile public return because it is his assumption that all has been forgiven and forgotten, thanks to the return to an era of greed, then warning bells should start ringing.

The problem with the warning bells, however, is that they are being drowned out by that background "ching, ching" noise which is the sound of ever-rising paper profits being posted by anyone with a share portfolio.

And in some case those paper profits are swelling to proportions that would have made the late Laurie Connell and the still-alive Alan Bond, green with envy.

Andrew Forrest is a case study of how to get seriously rich, seriously fast – and all on the promise of something that might, or might not, happen in the future.

According to the latest calculations, young Andrew owns shares worth around $320 million in his one (yes, one) year old Fortescue Metals Group – perhaps a stash which claims the title of fastest fortune in Australian history.

Interestingly, he's not alone. One of the forgotten new multi-millionaires of the Perth patch is Brett Fogarty, major shareholder in the GRD engineering and mining group. At last count, his 52 million GRD shares, plus 6.5 million partly paid shares, were worth around $145 million.

And speaking of new money, who can overlook Kerry Harmanis who has watched his 22 million shares in Jubilee Mines soar to around $113 million, or his mate Terry Streeter who owns Jubilee and Western Areas shares worth around $50 million, or the grand old man of prospecting, Mark Creasy, who has surely swollen his fortune beyond the $200 million mark thanks to a portfolio of speculative mining shares, and exploration tenements.

To get rich is glorious, as the late Chinese leader, Deng Xiaoping, so famously said in 1978. To hang on to the wealth may prove to be somewhat more of a challenge should Deng's countrymen develop a case of the economic hiccups - but that would never happen, would it?

“ANY old iron, any old iron”… could that be the tune playing in the background as a string of pre-loved iron ore deposits are trotted out before a gawking audience keen to follow in the gold-plated footsteps of Andrew Forrest, or to make a killing like George Jones will when he finally sells Portman to Cleveland Cliffs, or some other buyer.

But, the truth about the boom in iron ore, perhaps more so than any other commodity, is that very few of the hopeful producers will ever join the game - not that good profits will not be made from share trading on the road to project failure.

The reason for such a high attrition rate among iron ore hopefuls is simple; mining is not the critical factor, nor is a resource in the ground.

The big issue is transport economics – how much will it cost to dig up, haul, rail, and ship, because no matter what spin is put on iron ore it is a bulk commodity, albeit one on a roll right now with talk about of a price in the order of 50 per cent to 90 per cent from the current round of price talks.

Forrest understands this, hence his fixation with rail and port access. Others may not prove to be as smart.

One of the potential projects which Briefcase reckons will face a torrid time is the Southdown magnetite deposit being promoted by Grange Resources.

In theory, a terrific little deposit, a point made some 20 years when Southdown surfaced as a project owned by Portman, Terrex and others.

The trick for Southdown will not be in digging it up, it will be getting it to Albany via a proposed slurry pipeline, and once in the port, convincing the locals that their port is suitable for shipping iron ore.

Other projects will face similar mundane questions. Gindalbie may well have its own pile of magnetite at Mr Karara, in fact the iron ore is well known having been discovered by WMC more than 30 years ago. The issues will be rail, port and shipping.

The advice from Briefcase when looking at the rising tide of iron ore hopefuls is take care in  picking those which are trading opportunities, i.e.: get in and get out fast, and those that might have a chance of actually producing iron ore, posting a profit, and paying a dividend - and that is a very, very, skinny list.

“A little sincerity is a dangerous thing, and a great deal of it is absolutely fatal.” Oscar Wilde.


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