01/11/2005 - 21:00

Tim Treadgold: Briefcase -Has nickel’s peak long since passed?

01/11/2005 - 21:00

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Peak Oil is a hot topic in the petroleum business, and one that worries government because of the pain being felt at the bowser by voters. But a pain likely to be felt more acutely over the next few months by Australian investors is Peak Minerals.

In the case of Peak Oil, the debate rages around the question of whether global petroleum production has entered a period of perpetual decline.

In the case of Peak Minerals, the question is whether the great China-induced surge in mineral prices is over, for now at least.

Briefcase, which is not allowed to give investment advice, hesitates to give commodity price tips, or to point out some rather interesting anomalies that appear to have crept into the Australian markets. However, in the interests of an informed debate, consider some of the evidence.

Nickel, one of the lifebloods of the WA mining scene, has been in a rather spectacular price plunge over the past few months – not that you’ve read much about it locally. From a peak of around $US7.75 a pound in May (or more than $US17,000 a tonne), the metal is now trading around $US5.40 ($US12,000/t) a pound, a 30 per cent decline in around six months.

In theory, this means that local nickel stocks should be a lot lower in price, not that the traders playing with Jubilee Mines seem to have noticed. While the nickel price has been sliding Jubilee has been rising, up from around $5.30 last May to $6.50 the last time Briefcase looked – a rise of 23 per cent.

If Jubilee is a bad example because it has enjoyed exploration success, then what about Mincor, the major player in the restoration of Kambalda. Since May, perhaps also driven by good news on the exploration front, Mincor is up from 66c to 72c, a 9 per cent rise.

The story is repeated, to a greater or lesser extent, across the nickel sector. Minara is down about 10c (5 per cent), Western Areas is up 40c (25 per cent), and Independence is up 30c (22 per cent).

With all due respect to local speculators who love the nickel sector, it might be time to visit the London Metal Exchange website (www.lme.co.uk) click on data & prices button and construct your own graph, say over the past 12 months. It’s a very sobering sight when compared with the price graphs of nickel miners.

If Briefcase thinks it’s missing something in the nickel market then it’s definitely missing it in the copper market, where prices seem to be in a perpetual upward trend. From around $US3,000 a tonne a year ago copper is now north of $4,000/t, or around $US1.85/lb.

Terrific news as this is for copper miners, there is an eerie mood among copper traders who have been tipping a price correction since mid-year. The fear now is that when it comes, it will be a doozy.

Marc Faber, a Hong Kong-based fund manager with a habit of being correct with his price predictions, is one of the growing band who say copper is overdue for a fall, so overdue that he reckons a 40 per cent crash is not out of the question.

Late last week, in an interview with the Dow Jones wire service, Faber said: “I’m short copper, and while there is never any certainty, my feeling is copper has a 40 per cent downside risk in the next six months.”

Faber’s wider view of the world is expressed like this: “Since 2002, all asset prices, stocks, bonds, commodities and real estate, have become inflated, so we might experience at some point a relatively powerful correction.”

The problem for Faber, and all gloomy economists, is that no-one really knows what’s going on with the China industrial revolution, where demand seems to be showing no sign of slowing.

Perhaps we really are having a paradigm shift? Now where did Briefcase last hear that one? Oh, that’s right, in the tech boom of 1999 when everyone said ‘this time it will be different’. Guess what – it wasn’t.

•••

Pity the poor shareholders of ERG who have just received a “send more money” letter from their company.

Over the past decade they have tipped hundreds of millions of dud dollars into a business that promises much, and fails to deliver – and then promises more, and still fails to deliver.

Understanding what’s going on at ERG, or what went on before, does not require a degree in electronics. It is actually a very simple story – the nerds got control, invented a few bits of geeky technology, and then failed to (a) make it perform in the field like it did in the laboratory and (b) failed to demonstrate a business case for their gizmos.

In the meantime, management at ERG became a revolving door as executives came, and went, collecting large salaries while on the job, and big payouts when they left – half their luck.

What then for those unfortunate souls who retain their ERG shares (or, these days, an ASX statement)? In the opinion of Briefcase, have multiple copies made, take them to a wallpaper maker, have a few rolls made up, and paper the back of the loo door.

•••

As a last thought for the week, another little rant from Briefcase about news content. A few weeks ago the target under this heading was the interminable, boring, reports on Perth news services about a dude called Iemma who had become premier of NSW – as if Briefcase, or anyone else in WA, gives a rats.

The rant this time is about hurricanes in the Caribbean. All last week we had Wilma this, and Wilma that – and what really happened? It rained a lot, a few car parks got flooded, about a dozen unfortunate people lost their lives, and the hurricane moved on, like all hurricanes in the past.

Meantime, in Nigeria 144 people were killed in a plane crash, an item worth a few paragraphs on page 47.

The point being made by Briefcase is not racial, though it is a fact that the dead in Nigeria were mainly locals. The point is that the international news flow into Australia, even from the ABC, is routed through the US.

How much space, Briefcase wonder, will USA Today provide to the next cyclone which blows down the WA coast and flattens the Sandfire Flats Roadhouse (again).

•••

“If you leave a small corner of your head vacant for a moment, other people’s opinions will rush in from all quarters.” George Bernard Shaw

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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