The Japanese earthquake was the catalyst to sell stocks, according to resources analyst Gavin Wendt, of MineLife. Prior to the earthquake, Wendt says global financial markets were already jittery amid civil war in Libya, Middle East tension, continuing European debt woes, rising oil prices and fears of an inflation outbreak. “But the Japanese catastrophe was the lever for taking money off the table,” Wendt says.
But the tragedy has opened the door to long term investment opportunities. Wendt has gone out on a limb to say: “Looking past the immediate problems faced by Japan, I can envisage a much more positive scenario based on an economic and physical reconstruction effort unlike anything seen since the end of World War II. This will be positive for Australian commodity companies, whether it be gold, coal, iron ore or base metals.”
Accordingly, Wendt offers a list of diversified stocks that investors can consider adding to their portfolios, taking into account the heightened risk of investing in junior companies.
Gold Road Resources (GOR)
Wendt is bullish about gold given global uncertainty. The gold price has risen about 30 per cent in the past year to a fresh high of $US1445 an ounce in March 2011. “Given the political events in the Middle East and Africa, I believe gold will remain at the forefront of investors’ minds,” Wendt says. Gold Road Resources is generating high-grade drilling results from its Yamarna Project in Western Australia. The existing JORC (Joint ore Reserves Committee) resource of 917,000 ounces has just been upgraded. This is due to higher grade results from its new Central Bore deposit totalling 595,000 tonnes of ore for a grading of 7.9 grams of gold a tonne. Contained ounces total 150,300. “The high gold grades suggest low-cost mining down the track,” Wendt says “The Yamarna region is a first-class exploration address and an exciting ride lies ahead in 2011, as Gold Road Resources cranks up its exploration drilling program.”
Middle Island Resources (MDI)
Wendt says Middle Island Resources has secured high quality gold exploration assets in Burkina Faso and Niger in West Africa. The Reo project in Burkina Faso is the most exciting, comprising five exploration permits formerly held by US mining giant Newmont in exchange for Newmont taking a 10.15 per cent stake in Middle Island Resources. It also holds two permit applications made by Bureau de Consultations et des Services (BCS). Wendt likes the geography surrounding the Reo project, as it lies 90 kilometres north of the historic Poura gold mine (containing 1.5 million ounces), 100 kilometres northeast of the Mana deposit (containing 3 million ounces) and immediately northwest of the Perkoa zinc deposit being stgeloped by ASX-listed Blackthorn Resources and Swiss commodity giant Glencore.
Cobar Consolidated Resources (CCU)
Silver was the best performer of all the precious metals last year, surging by 83 per cent to a 30-year peak of US$30.92 an ounce by the end of 2010. And the story’s even better in 2011, with the metal hitting US$37 an ounce. Wendt says the rising silver price, like gold, is reacting to global uncertainty. He says Cobar Consolidated Resources owns the Wonawinta silver project in western New South Wales. Wonawinta currently hosts Australia’s largest unstgeloped silver resource of more than 50 million ounces and it has the potential to become a globally significant, low-cost silver producer by the end of 2011.
Territory Resources (TTY)
Increasing demand, particularly from Asia, is putting upward pressure on iron ore prices. The iron ore spot price has risen about 30 per cent in the past 12 months to US$170 a tonne. The Australian Bureau of Agricultural and Resource Economics and Sciences forecast China’s iron ore imports to grow by 2 per cent to 634 million tonnes in 2011, with Australian and Brazilian producers expected to be the major suppliers. Wendt describes Territory Resources as a solid, but modestly valued junior iron ore producer with a low-cost existing operation at Frances Creek in the Northern Territory. “The company has missed out on the hype surrounding a lot of its iron ore sector peers, but it has a sound plan in place that will see it steadily grow its operations,” he says. “It also has the leverage to expand via acquisitions.” Wendt says management is aiming to extend the Frances Creek mine life from 2013 to 2015 though an intensive program of reserve drilling. It’s also targeting some regional prospects.
Horizon Oil (HZN)
Saudi Arabia pumping extra barrels of oil into global markets to ease demand is unsustainable, according to Wendt. This is because Saudi Arabia risks long-term damage to its field reservoirs by pumping additional output. And Wendt doesn’t see Middle East tension subsiding anytime soon, saying the “Saudis are likely to encounter political challenges of the their own in the near future”. “That’s why I’m also very bullish when it comes to oil and energy globally,” he says. “Horizon Oil is my favourite emerging oil exposure because it’s an established producer. It has loads of potential, which is where the investment opportunity presents itself.” Wendt says the company offers substantial and tangible growth prospects, irrespective of the outcomes of individual exploration wells. “The company’s drilling program is essentially appraisal and stgelopment drilling, not wildcat drilling, but still with the very real potential to significantly add to the company’s share price and market value,” he says. “Horizon has a specific exploration and stgelopment focus in South East Asia, with advanced projects in New Zealand, China and Papua New Guinea.”
Marenica Energy (MEY)
Nuclear energy remains a viable global energy alternative despite the radiation fallout from Japan’s Fukushima plant. Wendt says like most uranium companies, Marenica Energy’s share price was punished following the Japanese earthquake. “Nevertheless, the company’s fundamentals remain sound and its operating base in Namibia is one of the best places in the world to stgelop a uranium project,” he says. “The longer-term uranium picture remains positive, but in the short term there may be further weakness.”
|COMPANY||(ASX CODE)||SHARE PRICE CLOSE|
|Gold Road Resources||(GOR)||68.5 cents|
|Middle Island Resources||(MDI)||55.5 cents|
|Cobar Consolidated Resources||(CCU)||96 cents|
|Territory Resources||(TTY)||27.5 cents|
|Horizon Oil||(HZN)||39 cents|
|Marenica Energy||(MEY)||4.9 cents|
Price current to market close, April 15, 2011
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