STO

A long, long time ago, I was recommended STO because it is likely to be takeover target once the South Australian state government's interference with protecting it is lifted.  That was a long, long time ago and it still hasn't happened.  However, the takeover possibility is still there.  The question is WHEN?

Yesterday, it declared that the LNG project at PNG is bearing fruit (with increased dividend) and another gas-condensate discovery has been made in Browse Basin (with Chevron and a Japanese company as partners).  The share price jumped a little.

Yes, I did buy STO but it has not been an elegant stock.  And in another portfolio, I earned my STO when it took over ESG which I bought at a very low price.  Luckily STO took over ESG as the state government allowed protestors to dictate its CSG policy.  Until a strong government is elected in NSW, CSG will have to wait.

Even though the PNG project has been forecast to be very profitable (for both the partners and the PNG economy), there is not a lot of strong positive effect on STO or OSH share price.  For that, we will have to wait till another profit jump, coupled with a big lift in dividend pay-out.

Big Four Banks

It isn't true that you cannot lose investing in banks.  It certainly is usually correct though.  And if you lose in Australia with the Big Four, then you are unlikely to see your investment vaporize.

Because I hold the Senior Citizen Card now, I have less inclination to invest in speculative mining shares.  And if I do invest in miners now, then I prefer established or those that have confirmed exploration success, preferably unwanted by others.

Recently, I put my money in BDR, with fantastic drilling results, and some into HIG where there is no debt and farm-in partners mostly are paying for development.  Neither has gain in share price.

I also ploughed some into OSH where future dividends are expected to rise but its investors are bailing out for a while.

But my investment in ANZ fell first and now into positive territory.  WBC is where I put the bulk of my recent indulgent is doing much better.

Just when I thought I can't buy anymore, today WCL which has been taken over by a Chinese company, paid me a nice cheque.  It is a tiny loss and only tiny because I bought not long ago when the takeover was announced and the share price would not rise to match the takeover price!  I felt smart buying but I think I should have been smarter!

OSH

I still don't know why investors sold out of OSH yesterday after a good profit announcement and a declaration of better profits to come.  What is even more fascinating is who are paying those idiots who sold the shares yesterday...  Most of the times, those people cannot even ask their fund managers why they did it.  Of course, there are many good decent ones around too but you still can't get any to justify their decisions, especially bad ones.

So yesterday, I paid $9.32 but today, it bounced up by 14c.  Not a huge jump but nothing has changed since yesterday after the profit announcement.

OSH

This is the best performing O&G stock in Australia.  By that, I mean, through slow and steady progress, not a sudden discovery of a huge amount of oil from successful speculation.

Yesterday, it announced a good profit with prediction of a rise in future income as its LNG project with Exxon Mobil keeps on producing the stuff that the Japanese and Koreans want.

Yet, its share price tumbled significantly.  Looking around, I couldn't find an explanation for it.  Hence, I topped up a small parcel.  It is already one of my biggest holdings but if it produces a dividend out of rising profit, it is very difficult to ignore the stock.

HIG

This stock had been dumped many times.  But if you read the news from The Australian, then you cannot believe it is only worth so little.  It has hardly any debt because those who farmed-in paid HIG for the privilege and also paid for significant amount for developing or exploring.

Why a Chinese company does not just take it over?  That is a AUD$64 million dollar question...

I put a buy at 4.1c in case some idiots want to dump their holdings but the investors must be getting smarter.  After waiting for a while, I have decided that I will have to pay much higher now to top up so today, at 6.5c, I have grabbed a parcel.

THE cyclical shedding of assets by the mining majors has long been a source of growth for the smaller resources companies.

And so it is again, with the ­majors high-grading their port­folios and steering clear of new capital commitments.
The latest to benefit is the ­Brisbane-based Laos copper and gold producer PanAust (ASX: PNA). It has emerged as the bene­ficiary of the aversion by Ivan Glasenberg’s Glencore Xstrata to developing new operations for growth’s sake.
The discarded asset is 80 per cent of the Frieda River copper/gold deposit in PNG. It is one of the world’s biggest undeveloped deposits of the two metals: 10 million tonnes of copper and 16 million ounces of gold.
Before Glencore took it over, Xstrata was thinking about a $US6 billion big-bang development. Glasenberg was having none of that, and a deal was struck last year to pass on the 80 per cent interest to PanAust for the knockdown price of $US75 million: $US25m on completion and the rest in December next year, plus a 2 per cent net smelter royalty capped at $US50m.
Of the 22 sizeable copper-­related deals struck since January 2001, none compares with the Frieda River deal for the cheapness of the resource acquired. It works out at US0.3c/lb .
There are some good reasons for the bargain-basement price. Frieda River is an undeveloped resource without a (published) mining reserve, and it is in PNG. Then there is the issue of financing its development.
But PanAust is not planning a big-bang development: it has been busy scoping a smaller and more doable project costing about $US1.6bn.
For that sort of money, Frieda River’s annual production could weigh in at 100,000 tonnes of copper and 160,000 ounces of gold. So, although downsized, it would still be a significant mine.
More to the point is that PanAust has secured its PNG growth option for a knockdown price.
Now that a condition of the deal proceeding has been met (Glencore first had to sell the Las Bambas copper project in Peru to MMG to secure Chinese approval for last year’s merger with Xstrata), the market is prepared to value Frieda River in PanAust’s share price.
UBS values Frieda River at $US1bn ($1.07bn), and PanAust’s 80 per cent interest at $US800m.
But it gives the interest a 30 per cent risk-adjusted value of $US240m or 41c a PanAust share. It underpins the resetting of its net present value at $2.73 a share.
Cathy Moises at Evans & Partners values Frieda River at just under $US1bn, and makes the point that adding just half of ­PanAust’s share of the valuation increases her NPV estimate by 53c to $2.79 a share.
So both UBS and Evan & Partners are valuing PanAust some 18 per cent to 21 per cent higher than PanAust’s market price yesterday afternoon of $2.30 a share.
That is all very handy for PanAust given its 22 per cent shareholder Guangdong Rising Assets Management is still mulling a takeover bid for the rest of the company.
In May, PanAust revealed that it had ejected a $2.30-a-share approach from GRAM, and a $2.20 a share approach before that. It also did the gentlemanly thing and agreed to permit GRAM access to due diligence ­information to assist it to materially improve its indicative offer price. And we haven’t heard anything on that score since.
Remembering that PanAust was trading at $1.58 a share ahead of the GRAM approach becoming public, it goes without saying that GRAM’s next move is critical to PanAust’s near-term share price direction. Should it decide not to proceed with an offer, the downside is now protected to some extent due to the hard ­numbers being applied in the market to PanAust’s Frieda River pick up. And, should it proceed with a bid, the bar just got higher.
Analysts at Canaccord reckon that with the uncertainty over the Frieda River deal now all but gone, the likelihood of a formal bid from GRAM has increased.
It argues that it was the Frieda River deal rather than the Laos operations that prompted GRAM to move in the first place.
But it expects only modest upside from PanAust’s current share price, given its target price for the stock of $2.50 a share.
PanAust releases its interim result on Thursday, and you would think GRAM has had long enough to decide. The occasion of the result — expected to be about $US40m — is as good a time as any for it to clear the air.
The other 20 per cent of Frieda River is owned by Highlands ­Pacific (ASX: HIG). Part of the PanAust-Glencore Xstrata deal on Frieda River involves PanAust moving to 14 per cent of Highlands in a two-step $10m placement priced at 7.7c a share.
That is interesting because Highland’s was trading yesterday at 5.7c a share for a market cap of about $50m, notwithstanding the $US1bn valuations of Frieda River implying its 20 per cent share is worth $US200m. Or $US60m if it is risk-adjusted back to 30 per cent.
Fair enough if that was all Highlands had. But it also has $6m in cash, a passive 8.5 per cent investment in the Chinese-run $US1.5bn Ramu nickel mine in PNG, plus a strategic package of exploration ground near the OK Tedi mine, also in PNG.
All that explains why Moises at Evans & Partners has a ­speculative valuation on the stock of 14c a share.

GOR

There is another greenstone belt in WA, discovered more than 5 years ago.  But the market is not really interested as it is too far west of Perth and there isn't that much infrastructure there.  However, GOR holds a big tenement and is expected to find more gold.

There has been a minor run but until the Chinese/Canadian or any foreigner become interested, the local investors are just oblivious yet aware of its discovery.

Russian fuckwits

Russians, or more specifically Putin fuckwits, have to learn that human beings live on one Earth.  Antagonistic existence drains wealth, eats up time and creates angst.  Such simple thoughts do not exist amongst nations run by gangsters.

While everything has remained much the same, just because the Russians have ended their military drills next to Ukraine, the world markets jumped last night.  Many thanks, you dickhead Putin!  And in the meantime, the fund managers collect their big pay checks for playing around with your money in the finance world.

ASX plunge

On a day like today when most stocks fall, it is nice to know my portfolios didn't fall as much.  In fact, it is very tempting to buy but I was at work and oblivious to the market.

Why are the big fund managers dumping?  It isn't just today that we know about Ukraine, MH17, Gaza dilemma, fanatical islamists reign of terror or the isolation of Russia.  China's falling economy isn't news today.  Australian deteriorating mining sector is not news either.

No meteorite has hit any US or any other major commercial centres.  Ebola is still in West Africa.

I have no answer why... so if stocks are still plunging on Monday, I would be tempted...

HIG

In The Australian, I read that a Chinese-owned PNG mine (Ramu nickel mine) has been ransacked and damaged.  The mine is worth $2.2 billion.  But it has a small Aussie interest of about 8.5% and HIG has no debt.  Yet HIG is only worth $50 million on the ASX.  To add insult on valuation, it has 2 other tenements in PNG with loads of mineral in it too (no firm partners yet).  The Frieda River copper asset is about a third the size of the massive Mongolian Oyu Tolgoi deposit.

You wonder why the Chinese don't just swallow it up!

If the market dumps HIG today, I intend to pick it up.  The mine is already starting to produce and will be ramped up after the temporary halt for the repair job.

GOR

I have bought many mining stocks in the past.  I buy after some research work.  And usually, you trust what the company announced to the ASX.  Yet, you wonder how truthful and honest management is.

GOR had been telling the market that it has found a new gold belt, eastern-most from Kalgoorlie but the market only took erratic notice.   As of today, its worth has doubled what I paid for.  This rise has mostly been recent.  But I am glad that what the company said about finding a brand new gold belt is consistent with its resultant share price.  Bravo!

Rare alpha

When others want, others will want too.  So AQO and ROC are under take over considerations.

And POG has gone up in the midst of plunges in world markets and dirty wars in Gaza and Ukraine.  Hence, gold stocks have performed well today.  But this effect is very ephemeral and the result is like playing with a yoyo.

Hence today, I have collected my rare alpha these days in spite of TON taking a slip.