Offshore options better as few gems found in mining sector

By Peter V O'Brien

Friday 9th August 2002

MINERS' SHARE PRICES

Company	3.8.01 (c)	2.11.01 (c)	1.2.02 (c)	3.5.02 (c)	2.8.02 (c)
Cue	10.5	6.5	6.8	6.4	5.5
Heritage	4	3.1	4	3.3	4
GRD*	140	135	156	137	118
NZ Oil & Gas	42	35	36	42	31
Otter	12.8	21	26	34	27
Summit	16.5	14.5	12	12	9
* Stated in New Zealand cents
London gold
($US/oz)	268.85	280.35	284.05	311.75	307.00
2002 high: $US326.50			2002 low: $US278.10

The Stock Exchange's mining sector has reached the point where quarterly reviews of company activities and developments are becoming repetitive.

An examination of the sector in The National Business Review on May 10 said nothing much had happened since an earlier consideration on February.

The same comment applies to the past three months. It is difficult for investors to get interested in a sector that has only three producing miners in the country.

They are GRD (Macraes Flat goldmine, Central Otago and a development near Reefton), Otter Gold Mines (32.94% of the Martha Hill mine at Waihi and development of the high-grade Favona underground mine adjacent to Martha Hill) and NZ Oil & Gas (oil and gas interests in Taranaki).

There is little sense in private investors buying shares in Otter. Its immediate parent, Normandy NFM, is under the ownership of US company Newmont.

Newmont/Normandy owns just under 90% of Otter, so the company sits on its current holding, moves to full ownership, sells the stake or winds up the group.

Otter's quarterly report carried a warning about the future: to ensure it had sufficient funds available to meet its financial obligations and to explore adequately its Tanami prospects (Northern Territory).

"The company recognises that it cannot simply rely on its principal shareholder's guarantee of its financial obligations or to provide exploration funding.

"Consequently the company continues to consider the means by which it can independently fund its financial obligations and exploration expenditure, recognising that if it is unable to do so its principal shareholder and guarantor may be forced to consider liquidation or receivership."

Anyone currently buying into the relatively few Otter shares available might need assurance there would be something available on a liquidation or receivership.

The company had negative shareholders' funds of $6.45 million at December 31 (the date of the last accounts) and carried an auditor's tag about a "fundamental uncertainty" whether the group could continue as a going concern.

Australian company GRD had no such worries. The company's direct mining interests are now only part of a broader-based corporate structure, which encompasses waste activities and mining infrastructure services.

GRD's Macraes Flat gold project again showed signs of a lengthening sustainable life.

The quarterly report said recent orebody modelling at Macrae showed the potential addition of 200,000oz to ore reserves, before the impact on any exploration success this year.

"This effectively replaces 100% of production for 2002, being the seventh consecutive year of production replacement."

GRD's share price eased over the past three months. That had more to do with the state of Australian and international sharemarkets than with any fundamental problems in mining and/or activities.

The rest of the listed mining sector, excluding NZ Oil & Gas, is a hotchpotch of exploration activities and minor producing operations, most of them located outside New Zealand.

People with a serious interest in mining investment would be better suited with significant Australian mineral producers and processors.

They need to watch metal price movements and demand, because those matters affect producers' share prices quickly.

Reports from major Australian producers indicated an improvement in demand for some metals this year, although prices were uneven.

The price of aluminium was $US1345 a tonne at the end of 2001. It moved in a narrow band over the ensuing seven months to be $US1310 a tonne on July 31.

Copper went from $US1466 a tonne in December to $US1510 on July 31, having gone past $US1600 a tonne in the second quarter.

Between December 31 and July 31 lead's price ranged from $US504-430, nickel went from $US5870-6810 (US$7205 on June 30), tin went from $US3865 on December 31 to $US4040 on July 31 and zinc's $US768-757.

BHP Billiton's June quarter production report showed higher production of the company's main minerals in the period.

MIM Holdings' report said strong operating performances in the June quarter continued the company's consistently high production levels achieved throughout the year.

Annual production for the 2002 financial year increased for MIM core products - copper, coal, zinc, lead and gold.

There is life in mining equity investment but New Zealanders should be looking across the water, where mines, companies and share prices are richer than in New Zealand.

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