09/11/2004 - 21:00

Tim Treadgold: Briefcase - Something for the little black book

09/11/2004 - 21:00


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Share tipping is fraught with danger in these over-regulated times so Briefcase kicks off this week with a warning that anyone who takes investment advice from a journalist is a fool.

Share tipping is fraught with danger in these over-regulated times so Briefcase kicks off this week with a warning that anyone who takes investment advice from a journalist is a fool. Having provided that somewhat more honest disclaimer than found at the foot of most stockbroker advisory notes there are a couple of companies slipping beneath the local radar screen with Gallery Gold one of those deserving much closer attention.

Based in Perth, Gallery’s real claims to fame are exposure to a line of seriously interesting projects in Africa and a changing status from explorer to producer.

Last week, despite a few construction hiccups, Gallery switched-on its $US28.6 million Mupane mine in the southern African country of Botswana. On its own, Mupane is small beer with forecast annual output of 100,000 ounces at a cash cost around $US210 an ounce.

Forward sales at $US392/oz demanded by Gallery’s banks have rubbed (should that be robbed) some of the gloss off the profit in the early years but the point about Mupane is that it flags the start of something potentially quite significant. Apart from the cash flow, Mupane means Gallery can now develop a production culture and move on to projects two and three.

Gallery chief executive, Hamish Bohannan, reckons that within a few years he could be running a business producing between 250,000 and 350,000 ounces of gold. Next mines to be developed are in another African country, Tanzania, a place known for its "elephants" – not of the pachyderm variety but of the giant gold deposit type.

The message delivered by Bohannan during a media jaunt to Mupane was that a decade of Gallery being just an explorer are over.

The company has flicked the switch to production, expanded via merger with Spinifex Gold to get its foot on the Tanzanian acreage and set sail for life as a fast-growing gold producer.

Since the end of September Gallery shares have been moving swiftly, up from 30c to around 46 cents, a cool 53 per cent over five weeks as the market gets more comfortable with the company and its growth plans.

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IF Gallery is a name for the black book then a second, and somewhat better known name also deserves a mention, if only for the fun of being involved with one of those characters that mining throws up from time to time. The company is Jubilee Mines and its larger (and louder) than life executive chairman, Kerry Harmanis.

As most local investors already know, Jubilee is a cash cow courtesy of its Cosmos nickel mine north of Kalgoorlie. Over the past four years, the mine has spun off $190 million in profits, and Jubilee has paid $109 million of that in dividends, a remarkable 57 per cent distribution record.

Despite its seemingly high share price, three factors justify Jubilee’s entry in the little black book.

First, is the quality of the orebody.  As Harmanis said at the annual meeting, Cosmos contains the world’s highest grade of nickel. It is genuine bonanza stuff that other companies dream about.

Second, exploration is expanding the production horizon, elevating Jubilee out of the short-life tyranny suffered by many other mines.

Thirdly, is the fun of attending the annual meeting and listening to Harmanis in full cry.

Last week’s delivery was aimed largely at the Australian Shareholders’ Association for questioning directors fees, a difficult complaint to sustain when trying to criticise such a successful company.

But the best came when Harmanis lashed back at a shareholder who tagged along with the ASA only to be told that perhaps he ought to sell his shares and buy some in another "non-dividend payer" such as Mincor.

This was classic capitalism in the raw and reminded Briefcase of a similar event a few years ago when a shareholder told the Titan Resources annual meeting that he was unhappy with the way the business was being run. At that point another larger than life character associated with the mining industry, Les Calcraft, jumped up and offered to buy the discontented investors stake on the spot, at the market price, cash in hand, drive away, nothing more to complain about.

Moral of the story: If, like the ASA and other malcontents, you are unhappy with the way a company is run, or the way directors pay themselves, do everyone (including yourself) a favour – sell, and invest where you’re happy.

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WHILE on the question of meetings, Briefcase had a similarly amusing time at the annual gathering of WA Newspaper Holdings. Like Jubilee, WAN management must sometimes wish it could enforce quality controls over its shareholders – along the lines of “will really dim people not buy our shares, please”.

Given that this is unlikely to happen, largely because chairman Warwick Kent is just too polite, Briefcase thought it might make a few observations about WAN, all involving a subject close to the heart of a retired banker, money.

Firstly, there is a note of congratulations to chief executive Ian Law who has played a key role in making all WAN shareholders 30 per cent richer this year with the share price up from $6.48 12 months ago to $8.75. Ian, quite rightly, has been one of the biggest  beneficiaries from the rise, adding $1.13 million to the value of his 500,000 shares which are now worth $4.37 million – a handsome sum for a man who’s three-year contract at WAN expires early next year and he (theoretically) takes up a position on the media-management interchange bench, unless WAN makes a quick move to nail him down.

Another winner, and recent subject of a front page story in WAN’s flagship paper, The West Australian, is Jack Bendat. Like everyone else, Jack is 30 per cent happier with WAN as his two million shares (which rank him 10th on the share register) have risen in value to $17.5 million.

Someone not so happy should be The West’s editor, Paul Armstrong, because his salary, according to the annual report, is a rather lowly $164,442, a figure which tops up to $262,792 when bonuses, car allowance and superannuation are added.

Before anyone thinks Paul is well paid consider the $226,412 base salary (and $325,398 total) of the sales manager, Peter Stevens, and the $226,412 base salary and ($325,398 total) paid to Law’s long-time friend and special projects manager, John Rowsthorne.

Using the base salary for measurement Briefcase reckons there is an anomaly of monstrous proportions at WAN for a very simple reason told best in this little anecdote from a lifetime ago.

The late Jim Macartney, when chief executive of WAN, used to say that in a well run newspaper "the editor and the advertising manager walk down the aisle hand-in-hand, with the editor one step ahead" – in other words, editorial rules, and must always do so.

Not, it seems at The West, unless Briefcase really is missing the message and that is that advertising and sales now rule the roost. These comments might not do Armstrong much good but Law really should fix the salary anomaly because it sends a bad message about what’s more important at Perth’s monopoly daily.

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“Editor: A person employed on a newspaper, whose business it is to separate the wheat from the chaff, and to see that the chaff is printed.” Elbert Hubbard.


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