04/10/2005 - 22:00

Tim Treadgold: Briefcase - The answer’s 42 – what’s the question?

04/10/2005 - 22:00

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Every speculator dreams of a 10-bagger, that legendary stock market winner that delivers a profit of 10 times the outlay.

What no-one imagines might happen in their lifetime is a 100-bagger of the type that turns a two-cent investment into $2. But, that is precisely what has happened with one uranium explorer, and explains almost everything you need to know about the other 42 new arrivals in the great uranium boom, which is doomed to end in the great uranium bust.

The great and well-known winner is Paladin Resources, which is developing the Langer Heinrich uranium project in Namibia. Its run from 2c to $2.50 has converted a classic penny dreadful into a $1 billion business, made its chief executive, John Borshoff, a rich man, and ignited the rest of the uranium sector.

Aiding the spectacular revival of uranium is a political debate about the merits of nuclear power and a change of heart, verging on an apology, from the environmental movement that perhaps nuclear is better than coal or gas.

Whatever the reasons, it is a courageous investor who deliberately enters the hyper-inflated bubble that is the Australian uranium market.

To understand just how inflated, go back to the first paragraph and ask why did Briefcase pick the number 42 to illustrate its opening remarks?

The answer is simple. A check of mining sector reports from the past six months shows that 42 mineral explorers have suddenly, oh so painfully obviously suddenly, added uranium to their product mix.

Why? A one-word answer: Paladin.

Everyone, including Blind Freddie and his dog, has suddenly become a uranium explorer. Last week, the hottest of the hot stocks was freshly-floated Energy Metals, which soared from an offer price of 25 cents to a first sale on $1 on September 9, and then onward and upward to $1.30 (after briefly touching $1.62) – if not a 10-bagger, then at least a five-bagger.

The prime asset in Energy Metals is a 53 per cent stake in a uranium discovery that carries a historic tag. Bigrlyi was discovered in 1971 at the tail end of the Poseidon/Tasminex nickel boom, has changed hands several times and is now the market plaything of an entirely new generation of ASX speculators who either believe (a) it will quickly be developed as a uranium mine, or (b) couldn’t care less just so long as the Energy Metals share price keeps rising.

It is this blind hope of a never-ending boom that has seen the entry into the uranium game of stocks such as Giralia, Avoca, Batavia, Compass, Contact, Resolute, Korab, Arafura, Redport, Marathon, Bannerman, Nova, Marengo, Siberia, Drake, Matrix, Acclaim, Bullion, Extract, Mindax, Cazaly, Omegacorp, Curnamona, PepenNini, Alliance, Stellar – and on, and on, and on, until we reach the full count of 42 new (and true) believers in uranium.

Briefcase, as any reader can tell, has a particularly jaundiced view of the address peggers (explorers who use the ‘science’ of near-ology), and commodity peggers (who jump aboard any passing boom).

But, the uranium stock he loves the most is Fast Scout, a company that has displayed boom-time qualities the like of which haven’t been seen since the tech-wreck of 2000. In fact, Fast Scout can even lay claim to being the first reverse conversion of the current uranium boom.

For non-followers of this bizarre situation, Fast Scout is a technology stock developing Internet-type stuff. On September 20 it said it was going uranium exploring in the Northern Territory, an announcement which had the desired effect of sending the share price up from 1.1 cents to 21 cents in a matter of days – almost 20 bag country.

When Briefcase last looked at Fast Scout it was in a self-imposed suspension pending a fresh announcement on its uranium search plans – and perhaps a new name to better reflect its future ambitions as a “leader” of the uranium boom.

Among the other noteworthy recent uranium announcements:

Berkeley Resources, which has struggled since floating last year, saw its share price jump by 45 per cent after announcing the acquisition of uranium tenements in Spain; and

Redport said it had paid $150,000 for an option to buy ground adjacent to Rio Tinto’s undeveloped Kintyre project which, apparently, Rio Tinto is showing no sign of rushing to develop.

The Kintyre announcement is a perfect example of the point being made by Briefcase. Here we have a 36,000-tonne uranium project, frozen only by political decisions made in Perth and Canberra. If there is to be a uranium mine at Kintyre it will be developed by Rio Tinto and not Redport.

•••

Sometimes Briefcase wishes he could be a fly on the wall, and the wall he would really like to be on right now is at CGU, the big insurance company once better known as Commercial and General.

Why? Because last week a truly breathtaking advertisement was placed in a local newspaper by CGU, headed "apology".

The wording of the advertisement tells the story, which falls into the category of great business bloopers.

In CGU’s own words: "CGU recently issued a statutory demand to GRD Minproc for payment of outstanding workers’ compensation premium. CGU subsequently applied to the NSW Supreme Court to wind up the company for failure to comply …"

Get the picture? Insurance company demands a payment, goes to court, and then discovers that … "the winding up application was the result of an administrative error", and ends with the insurance company saying: "CGU sincerely apologises …."

In the interests of completing this story, Briefcase would like to hear from anyone who saw a head rolling out the front (or back) door of CGU’s head office. No names required, but a picture of the head can be sent to WA Police, which will ensure its widespread distribution.

•••

A new word has entered the employment world – retention. It seems that keeping good people has become so hard for employers that Lester Blades, an employment agent that includes Wesfarmers among its clients, describes itself as "executive search, selection & retention". Now that’s an interesting sign for anyone pushing for a pay rise.

•••

"The art of acting consists of keeping people from coughing."

–        Sir Ralph Richardson

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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