The Speculator

PORTFOLIO POINT: Image Resources, which has been kind to this column before, should attract more attention from mid-June with the arrival of a Malaysian investment delegation.

Eureka Report editor James Kirby writes: If speculation is an art then David Haselhurst, whose Speculator column has appeared in Eureka Report since April, is surely a master. As the ASX breached the crucial technical barrier of 4000 earlier today, after rising around 8% for the year to date, David's portfolio has entered a realm of its own by rising by more than 103% in the year so far.

David's ability to double his money within six months is remarkable, although not unprecedented to anyone who has followed his career from his early days on the now-defunct Bulletin magazine.

We congratulate David today on his success as a contributor to Eureka Report. And it's worth noting that if David wants to match records he set for himself as recently as 2007 and 2006, he still has some distance to go: for the full calendar year of 2006, he made 193% against 19.8% for the broader market; and in 2007 he made 141.6% against 13.7%.

As today's column indicates, some of the success attributed to the Speculator column this year has come from the very strong rebound in commodity-based small caps. However, it's also interesting to note that David's timing is often superb. In today's column he details how managed to get into Robust Resources just weeks before coal tycoon Ken Talbot (ex-Macarthur Coal) went into the stock – a move that pushed Robust Resources higher by 70%. (We'll have a detailed story on Talbot's share purchase blitz across the ASX in Eureka Report on Friday, June 8.)

For the record, David’s picks have outperformed the All Ordinaries index in 31 of the 36 years since his annual performance table was introduced. In 11 of those years his annual gain has exceeded 100%; his best year was a gain of 305.5% in 1999, a year in which the All Ords rose just 11.5%. His worst year was 1981 when he lost 27% against a broader downturn in the All Ords of 16%.

Of course, we don't claim that you can mirror David's portfolio exactly, neither do we recommend that you speculate with any more than a small part of your portfolio. But it you want to speculate you might learn a few things from the master.

Image Resources has been an exceptionally profitable stock pick in this column before. In January 2006 we added it to the portfolio at 39¢, on the strength of its vast exploration tenements and its burgeoning resource base. A year later the shares had soared to $2.87 as the stockmarket boomed. We took partial profits. Then in mid-June of 2007 we topped up our holding for an average entry price of 93¢. By the end of that year the shares were trading at almost $2 when we sold down again to double our winnings.

Disaster struck some of the company’s shareholders earlier last year when the overall market tanked and margin calls from lenders such as Opes Prime forced the sale of millions of shares when investors couldn’t meet their calls. Image shares fell to a low of 20¢, but have since recovered to about 65¢ as the company’s field programs continue to deliver success and attract potential suitors.

The company, under managing director geophysicist George Sakalidis, holds 2250 square kilometres of exploration tenements over the northern Perth Basin, which, at the end of the March quarter contained an inferred resource of 9.7 million tonnes at 5.8% heavy minerals, or 560,000 tonnes. These minerals (such as zircon, rutile, monazite and illmenite) are concentrated in ancient but near-surface buried beachstrand lines. At least 300 kilometres of so-far identified targets remain to be drill-tested.

On May 10, the company announced further bonanza grades from its 70%-owned Atlas project near the northern-end of its areas, with a high-grade zone averaging more than 20% heavy minerals extending over a strike length of 1.4 kilometres, within a continuous envelop of more than 5% heavy minerals with a strike length of 4.9 kilometres and up to 250 metres wide. The ore extends from surface or near-surface with a very low strip ratio of 1:1.

nThe Speculator portfolio, at June 2, 2009
Company	ASX	No of shares	Bought	Purchase price	Current price	Current value
Laserbond	LBL	20,000	04/07/08	$0.10*	$0.110	$2,200
EMT Corp	ETC	20,000	01/08/08	$0.24*	$0.480	$9,600
Robust Resources	ROL	40,000	13/02/09	$0.155 avge	$0.730	$29,200
Quickstep Holdings	QHL	20,000	16/03/09	$0.165	$0.170	$3,400
Cortona Resources	CRC	20,000	14/04/09	$0.150	$0.195	$3,900
A1 Minerals	AAM	20,000	12/05/09	$0.145	$0.175	$3,500
Gage Roads Brewing	GRB	40,000	26/05/09	$0.050	$0.076	$3,040
Image Resources	IMA	12,000	02/06/09	$0.645	$0.640	$7,680
Total value of portfolio						$62,520
Plus cash at bank						$18,730
Total						$81,250
Portfolio change since January 2, 2009						103.13%
All ordinaries change since January 2, 2009 (then 3655.7)						8.00%
*These shares were carried over from the 2008 portfolio, hence the 2008 purchase dates. However this price is the "beginning of year" value not the original purchase price. Disclosure: The author's family holds shares in Laserbond Current value based on last sale June 2, 2009

To put this find into perspective, another successful miner on the northern sandplain, TiWest, is mining an average 4% heavy minerals in its dry mining operations and as little as 2.4% on dredge mining.

The company’s field work has attracted increasing attention in recent months and the latest bonanza grades will certainly reinforce that interest. A further stimulus has been a firming of the zircon price from a low last year of $US750 to about $US900 a tonne and a firmer rutile price of $US550–600 a tonne.

The company already holds four memorandums of understanding (MOUs) with potential customers or joint venturers. Unlike the much debated MOUs of iron ore miner Fortescue Metals, they are not claimed to be binding contracts, but they do give the holders access to the tenements, samples, scoping study data and rights to buy up to 5% of the company.

Two of the MOUs are held by Chinese companies and are valid for at least a year: Hainan Geological Survey and Fibonacci Group of Peking. Another two are held by two of the four major mineral sands miners active in Western Australia, although Image is contractually unable to reveal their identities.

A resource estimate of the new Atlas find should be ready in July. To that end, Image last week raised $3 million cash through a placement of 5,455,108 shares at 55¢ each to investors. That has boosted the total number of issued shares to 85.1 million and increased cash and liquid holdings to $7 million.

Among the companies featured in the placement was Pontian Orico Plantations Sdn Bhd, of Malaysia, which added one million shares to its new holding of 6.54 million or 7.68% of Image. Directors of that company are leading a delegation of investors from Malaysia to visit Image’s operations beginning on June 13.
We’ll take a position with the purchase of 12,000 Image at 64.5¢.

Locking in profits to pay for new punts

Our fabulously successful purchase of gold prospector Robust Resources (ROL) at an average price of 15.5¢ a share on February 13 ran to a new high of 85¢ a share last week, representing nearly half the value of the entire portfolio. So we’ve sold 20,000 and retained 40,000 to boost cash at bank and pay for other potential winners.

Robust soared after it placed 7.24 million shares at 35¢ to give Talbot Group Holdings Pty Ltd a 15% equity and add $2.534 million to Robust’s cash resources to expand exploration of its Romang Island gold-silver in Indonesia, 500 kilometres north-west of Darwin. Talbot is a Queensland company with substantial exploration, mine and market development interests in Australia and overseas. The placement will enable a third company-owned diamond drilling rig to be on the island by July to complete a 5000-metre drilling program by December on what is seen by some as a potential mirror-image of Lihir’s Caldera gold deposit.

Cash windfall for Viralytics

Our cancer-cure hopeful, Viralytics (VLA), has extended its one-for-one offer of options at 1¢ each, exercisable in 12 months at 4¢ until June 5. This follows an unexpected offer from a third party, yet to be identified, to take a $6 million convertible note that will fund the company’s programs through to mid-2010.

As a result, the exercise price on the options to be issued will be reduced from 4¢ to 3¢ and we hold our application for 100,000 of the options. The options offer was available to the many shareholders who followed the Speculator into Viralytics and remained registered up to May 5.

David Haselhurst writes a monthly column for Money magazine.