Remaining miners plug on but industry's day will come again

By Peter V O'Brien

Friday 10th May 2002

Opportunities are drying up for investors wanting shareholdings in mining companies with a New Zealand listing and physical operations here.

Six companies are in the table of comparative share prices but only three are active producers in New Zealand.

Nothing much has happened in the local mining sector since The National Business Review considered it on February 8.

Australian company GRD had a 1:10 cash issue at $A1 a share. Rights trading ends today. Payments are due by May 14.

GRD operates the Macraes Flat gold mine in Central Otago and is developing a promising prospect near Reefton.

Normandy NFM's bid for Otter Gold Mines closed on April 2. The Australian company said it owned 89.17% of Otter after inclusion of postal acceptances received after the closing date.

Otter's New Zealand interests are 32.94% of the Martha mine at Waihi, development of the high-grade Favona underground mine adjacent to the Martha treatment plant and complementary exploration activities at Waihi.

The first report of the outcome of Normandy's bid came on April 3, from "Normandy NFM ... trading as Newmont NFM," signalling US mining giant Newmont's acquisition of the Normandy group.

No further announcement had been made at the time of writing, so Otter stays listed. Normandy/Newmont's holding was under the 90% required to allow compulsory acquisition of the remaining shares.

It has been reported that Newmont intends to sell small Normandy interests, because the world's biggest goldminer has no interest in insignificant mines.

The "small interests" would seem to include Otter's holdings in the Waihi mine and exploration activities.

Recent rises in the gold price attracted attention, to the point of excitement among those who believe the metal is regaining its rightful place in the investment sun as a store of value, an inflation hedge and a safe haven in troubled times.

The London price of gold increased 17.1% between May 4, 2001, and last week and 11.2% in the past six months. Those increases were healthy but no better than the improvement in many individual equity prices.

The latest movements enthused gold bugs. They overlooked that the London gold price five years ago on Friday May 2, 1997, was $US339.65 an ounce and ranged from $US414.80 an ounce to $US345.10 in the 16 months from the end of 1995.

Anyone who bought gold then with a view to long-term holding and appreciation has a basic loss before accounting for opportunity cost.

Gold is a commodity, which should be traded like other
commodities on the swings and with an eye for the basic supply/demand equation. Jewellery is the main element in that equation.

The tenacity of the "gold faithful" is an interesting investment phenomenon, particularly as it seems unshakeable even when the price goes down.

It will go down again unless the faithful rush to buy if there are more terrorist attacks, other actual international crises or the hint of them.

The mining companies' March-quarter reports disclosed little that would push their share prices.

Heritage Gold said it was doing more work on its Karangahake tenements, directed "to the delineation of drilling targets in the short term."

The company's other mining project is a 33% interest in a cobalt resource near Broken Hill in Australia.

Cue Energy Resources' exploration and production activities are in Papua New Guinea, in Indonesia and a small interest in Western Australia.

Small amounts of oil are being recovered from Papua New Guinea's SE Gobe field in which Cue has a minor interest.

Summit Resources operates in Australia. Its main activity is exploring and drilling for base metals on tenements in the Mount Isa area of Queensland.

The current situation of the mining and mineral exploration sector can be compared with previous activity.

There were seven listed companies in the sector in 1980, similar to the number in operation through most of the 1970s. There had been a burst of activity in the late 1960s when mining also attracted the attention of some international cowboys.

The big time came in the 1980s, as it did for jerry-built companies in other sectors.

There were 17 listed "mining" companies in 1990, but many were increasingly shaky after the 1987 crash.

The current number of companies may be small but history suggests there will be another wave of promotions, as occurred in the 1980s, in the 1920s, at the turn of the 1900s and earlier in the 19th century. Current producers and would-be producers continue to plug on.

MINERS' SHARE PRICES

Company	4.5.01	3.8.01	2.11.01	1.2.02	3.5.02

Cue	5c	10.5c	6.5c	6.8c	6.4c
Heritage	4.9c	4c	3.1c	4c	3.3c
GRD*	$1.17	$1.40	$1.35	$1.56	$1.37
NZ Oil & Gas	36c	42c	35c	36c	42c
Otter	17c	12.8c	21c	26c	34c
Summit	10c	16.5c	14.5c	12c	12c
* Adjusted for issue; stated in New Zealand dollars
London gold ($US/oz)	266.15	268.85	280.35	284.05	311.75
	2002 high:	$US311.75		2002 low:	$278.10

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