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A buoyant resource sector has prompted two Auckland geologists to set up a service offering independent advice on global mining stocks. The Mining Investor, a monthly subscriber-only newsletter, will focus on Australian Stock Exchange-listed resource companies in the early stages of mineral discovery.
The authors, veteran geologists Dr Ray Merchant and Peter Roberts, will focus on companies with potential for solid long-term growth, and claim their expertise will allow them to "cut through the hype and jargon" and assess projects independently.
"Most information poked at [investors] is paid for by companies involved or brokers who have a vested interest," Merchant said. "We see things that a stockbroker wouldn't be able to see."
Of the more than 500 resource companies on the ASX, at least 400 are classed as junior miners or explorers, many active internationally. "With that amount, it's pretty difficult for the average investor to sort the wheat from the chaff," said Merchant.
Before valuing a company, there were many technical issues to be taken into account, Roberts said. "A company puts down a drill in Wagga Wagga and announces to the ASX it's found gold. It sounds good, but the gold might be difficult to recover and require a $40 million high-acid leach plant to do it."
Securing local authority permits and a water source for the mine, as well as dealing with native land title issues, could stop a company progressing for many years, Roberts said. A typical metal mine takes 10 years from discovery to full production.
After a flattish period over the last five years the resource market is experiencing a boom, mostly driven by China's huge appetite for raw materials. A supply shortage of key commodities such as nickel, and zinc, has sent prices soaring.
The price of a typical mining stock rose when an exploration success was announced, and again when the resource was upgraded to a proven reserve, Merchant said. It increased again after completion of a positive feasibility study. Investor risk shrank as knowledge of the resource increased.
"To get a better, steadier, less risky return, the punter must have a better understanding of minerals, mineral exploration and the markets involved."
The pair will also watch mining companies in Mexico, but not New Zealand. New Zealand Mining and Exploration Association figures show most mineral-prospective land is controlled by the Department of Conservation and off-limits to mining.
