The Speculator

Dirt cheap, or in a hole? Market forces have driven down most of our mining stocks. How long they'll stay down for is anyone's guess.

PORTFOLIO POINT: Gullewa Ltd stands out as our best punt for the last half of the lamentable 2011-12 financial year as four of our listed stocks skid along at new 12-month lows.

Tax loss sellers would have had little trouble realising their trading losses for the end of 2011-12 – that’s if they could tempt one of the many unwilling buyers to take an “el cheapo” position in various low-priced stocks that will turn out to be bargains as the market revives.

The Speculator’s best buy for the last half of 2011-12 was Gullewa Ltd (GUL), which is now the biggest shareholder in the recently-listed Queensland coal developer Allegiance Coal (AHQ) with a 56.6% stake.

Ahead of the listing of Allegiance, The Speculator on May 23 picked up 100,000 Gullewa at 6.3c and tipped readers to the possibility of a win in the week to follow. In the next three days of trading, Gullewa shares jumped 66% to a high of 10.5c on a turnover of more than 900,000 shares, mostly at the week’s high price.

It proved a winner for nimble-footed followers of The Speculator. We took profits on 60,000 and retained 40,000 Gullewa for what amounts to be a free ride into a future turnaround.

As we pointed out in our column of May 30, Allegiance could not have picked a worst time to list in this unenthusiastic market. Allegiance’s public issue, underwritten by Patersons Securities, raised $7 million through an offering of 35 million shares at 20c plus a free one-for-four option exercisable at 25c by March 30, 2014.

On its listing day (Tuesday, May 29), Allegiance’s shares debuted at 19.5c but rapidly fell to a day’s low of 11.5c, before recovering slightly to close at 12c on a turnover of 1.52 million.

Allegiance’s unexpected share price collapse on listing day prompted Gullewa’s chairman – the veteran exploration geologist and geophysicist Tony Howland-Rose -- to personally step into the market and snap up 500,000 shares at 12c each. That seems to have stabilised the Allegiance market on listing day but only for a short time.

Last week, Allegiance shares, in common with so many others, drifted to a new low of 10c on a week’s turnover of 800,000 shares. That seems to be a harsh undervaluation of Allegiance’s prospects, with its total issued capital of 176.66 million shares carrying a market capitalisation of just $17.6 million backed by remaining cash of around $7 million.

That’s sufficient to cover the exploration budget for the next two years according to Allegiance’s prospectus.

As a previously unlisted entity and subsidiary of Gullewa, Allegiance over the past four years put together a portfolio of 14 granted tenements, totalling 2,361 square kilometres over seven of Queensland’s coal basins, including the Bowen and Surat Basins.

On June 8 Allegiance announced a 30-hole drilling program to start on the company’s Back Creek project on the Surat Basin.

Last week Allegiance managing-director – mining engineer Colin Randall – confirmed the completion of two holes (BC2 and BC5) on the northern section of the tenement (EPC1297). Both were claimed to have intersected potentially significant coal, particularly BC5, which intersected 9.3m of cumulative coal to a depth of 69.5m.

The company pointed out that most of the remaining planned holes are focused on a current exploration target of 60-80 million tonnes of shallow, open cut, low-ash thermal coal located in the central and southern portions of the tenement. That program is expected to be completed by August aimed at a JORC resource by Q4 of 2012.

Emerging gold miner sags to new low
Stale investors turned tax-loss sellers appear to be the cause of Cortona Resources’ (CRC) continual slide from a high a year ago of 21c to a new low last week of 8.2c.

Yet it is not apparent that any substantial shareholders have been dumping stock. The weekly turnovers in the past couple of months have ranged between 780,000 shares to 2.3 million – which isn’t excessive for a stock with 268 million issued shares. Volatility in the bullion market would not have encouraged the market.

On May 8 we bought 5,000 Cortona at 10c to top up our holding in the emerging near-Canberra gold miner to 25,000 shares at an average “in” price of 14.6c. On that date the shares had then slipped to a new low of 10c ahead of a presentation the company was about to deliver to an investment seminar at Sydney’s Wentworth Hotel.

On the same day the gold price had slipped overnight to just above $US1600/oz, but we pointed out that the company should be in production early next year with a forecast cash operating cost of $697/oz. That’s still a wide operating margin with the gold price today standing at $US1571/oz.

In an update on June 6, Cortona confirmed practically all of its green tape and red tape hurdles had been overcome. So, backed with a completed $42 million credit package from Deutsche Bank to finance an initial six-year mine life, it was ready to proceed with developing an annual production 65,000oz of gold from its initial Dargue’s Reef mine 63 kilometres south-east of Canberra.

We’ll stay with it for now, particularly since a drilling rig has been secured to start next month testing identified targets within its 700 square kilometre exploration licence on the Majors Creek Goldfield. This was the most prolific producer in NSW, which yielded at least 1.2 million ounces of gold mostly to 19th century diggers from alluvial deposits and shallow workings.

-The Speculator portfolio, as at June 27
Company
Code
No of shares
Bought
Purchase price
Current price
Current value
Image Resources
IMA*
15,000
31/12/2010*
0.362 av
$0.285
$4,275
Viralytics
VLA
19,995
20/12/2011
$0.308
$0.255
$5,099
Robust Resources
ROL
6,000
31/12/2010*
$1.49 av
$0.810
$4,860
Scotgold Resources
SGZ
27,500
31/12/2010*
5.5 av
$0.060
$1,650
GoConnect Ltd
GCN
250,000
31/12/2010*
0.034 av
$0.026
$6,500
Minemakers
MAK
20,000
25/01/2011*
0.425 av
$0.130
$2,600
Platsearch
PTS
20,000
8/02/2011*
$0.130
$0.060
$1,200
Broken Hill Prospecting
BPL
30,000
22/02/2011*
$0.132
$0.011
$3,300
Austpac Resources
APG
40,000
2/03/2011*
$0.060
$0.029
$1,160
Potash West
PWN
11,050
30/03/2011*
$0.200
$0.230
$2,542
Cortona Resources
CRC
25,000
13/04/2011*
0.146 av
$0.085
$2,125
Golden Gate Petroleum
GGP
408,500
20/04/2011*
0.0145 av
$0.011
$4,494
TNT Mines
TNT
4,440
22/07/2011*
$0.000
$0.250
$1,110
Quickstep Holdings
QHL
20,000
23/11/2011*
$0.185
$0.165
$3,300
Orpheus Energy
OEG
19,250
17/08/2011*
0.164 av
$0.100
$1,925
Black Mountain Resources
BMZ
10,000
17/04/2012
$0.300
$0.235
$2,350
Gullewa
GUL
40,000
22/05/2012
$0.063
0.081
$3,240
 
Total value of portfolio
$51,729
Cash at bank
-$7,530
Total
$44,199
 
Portfolio change since January 3, 2012 (started with $50,000)
-11.60%
All Ordinaries change since January 3 2012 (then 4155.22)
-2.38%
 
*Shares held from previous year, carried at their December 30, 2011 closing price.

David Haselhurst writes a monthly column for Money magazine. Please note that he is not able to provide personal replies to emails.