Big on hope but small on getting stuff out of the ground

By Peter V O'Brien

Friday 9th May 2003

Local mining and exploration companies had virtually nothing to report in terms of production in the latest quarter.

GRD produced more gold at its Macraes mine in Central Otago but it is an Australian company, irrespective of how many New Zealanders are on the share register.

A facetious interpretation of the company's latest quarterly report could suggest other local mining companies were lucky to have no production.

GRD's said the rapid rise in electricity prices added about $56 an ounce to production costs of gold. It was an extraordinary figure and one that will not be lost on other overseas miners as they assess the merits of operating in New Zealand.

As the country moves into winter, the power shortage may not be just a short-term issue. The issue of depletion of energy sources was addressed indirectly in NZOG's March quarter report.

Referring to the Kupe oil and gas field, the company said recent confirmation of early depletion of Maui by 2007 and a downgrading of reserves at Pohukura resulted in "market dynamics changing from a buyers' to a sellers' market."

Resultant higher gas prices would underpin development of Kupe. It seems obvious a price for one form of energy could lead to increases for others.

Rising prices for any mineral (including oil and gas) can make previously marginal deposits commercial.

The regular mothballing and later reworking of goldmines as prices fluctuate is an example of the phenomenon, although operators need evidence of sustainable price plateau before they will risk the necessary investment.

There was nothing else in the quarterly reports from New Zealand-based miners to excite investor interest, whether exploration activities are here, overseas or a combination.

The last consideration of mining companies (NBR, Feb 14) suggested New Zealand investors should look to Australia if they were interested in the sector. The table includes six Australian miners, as examples drawn from the many operating in that country. They include the biggest in various parts of the broadly defined mining industry.

A mix of solid production from current mines with substantial ore reserves, well-organised exploration and development activities and geographically diversified operations are features of BHP Billiton and Rio Tinto in minerals. BHP Billiton also has large interests in oil and gas.

MIM (under takeover offer) has most of its activities in Australia, but also operates in the UK and Argentina and has additional exploration in Chile and the Dominican Republic.

Santos and Woodside represent sizeable sections of the Australian oil and gas industry. The former recently announced plans to lift oil and liquids (as opposed to gas) production. The April 30 annual meeting was told oil and liquids provided the "high margin upside for our investors."

Santos will bring two new fields into production in 2004-05, one of which added 50% to the company's proven and probable oil reserves.

Newmont Mining is the world's biggest goldminer.

Brief discussion of six Australia-based mining companies is not intended as a recommendation of their shares, although they would be high on any list of mining investments.

It shows the size and diversification of the Australian mining sector, ranging from the giants through medium-sized and small specialists to blue-sky explorers hoping to crack the big one.

The New Zealand sector, by contrast, is big on hope but small on getting stuff out of the ground.

Mining company share prices

Company 7.2.03 5.5.03 Change

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$NZ Cue $0.06 $0.052/10 -13%
Heritage $0.033/10 $0.038/10 +15%
GRD (NZ price) $1.15 $1.16 +0.9%
NZ Oil & Gas $0.31 $0.29 -6.4%
Summit $0.06 $0.06 Nil

$A BHP Billiton $9.27 $8.85 -4.5%
MIM $1.48 $1.69 +14%
Newmont Mining $4.82 $4.36 9.5%
Rio Tinto $33.32 $31.25 -6.2%
Santos $6.03 $5.57 -7.6%
Woodside $10.86 $11.35 +4.5%

London gold: $375.80 $341.20 -9.2%

$US/oz

2002/03 high $382.10

2002/03 low $278.10

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