02/04/2004
Of the 80 mining stocks on AIM, the majority are either Australian-based or Australian led. And many more Antipodean ventures are hoping to float soon, offering much the same as all the others – a hole in the ground with an optimist at the top. So, are any worth the risk? Robert Tyerman reports
Australian entrepreneurs with something valuable in the ground – or keen to persuade you they soon will have – are beating a path to AIM as never before. If three current candidates, Aztec Resources, Tantalum Australia and Toledo Copper, make it aboard, they will swell a tide of Aussie AIM mining and related companies anxious to gain recognition in the world's most internationally minded stockmarket and, now or later, tap it for funds.
They will soon be joined by Albidon, which is going for £6.2 million at 2p on Sydney and AIM simultaneously to fund nickel exploration in southern Africa. Perth-based Irishman Donal Windrim heads Albidon, which is being advised in the UK by broker Numis.
Whether AIM investors should beat a path to them, however, is another matter. Several past Aussie AIM floats, such as Consolidated Minerals, have performed handsomely.
Some have even moved up to the Full List, notably Aquarius Platinum, which is still several times its 2000 float price though nearly 25 per cent off its 2002 peak. UK companies with Australians at the helm, such as Monterrico Metals and Griffin Mining, have also thrived on AIM, while, on the Full List Anglo Pacific has been another winner.
Several recent disasters, however, such as Gympie Gold, AuIron and Murchison United, which are either bust or dormant, should remind punters that backing junior Australian mining companies can carry a high degree of risk to balance against hoped-for rewards. Some British Isles-based AIM miners, from Peter Hambro Mining to Phil Edmonds' Southern African Resources or John Teeling's African Diamonds, themselves carrying significant risks, have outperformed most of their Australian AIM rivals.
Copper and gold prospects in Zambia have sent African Eagle, British but with an Aussie chairman in John Park, up fourfold despite the withdrawal of a major potential partner from its Miyabi gold prospect in Tanzania. Toronto and AIM-quoted First Quantum has soared on cobalt and copper finds in Congo.
But, since before the Poseidon nickel bubble (and burst) of the 1960s, Australia's own abundant minerals have repeatedly tempted British investors to dabble. Now Australian companies offering mineral prospects thousands of miles from Australia are tapping the market.
Caution has to be the watchword for investors, even before the mining boom eventually runs out of steam. However, if the entrepreneurs and/or other key players in Australian companies and their advisers and important backers check out and if their projects, location and minerals look good, they should be in with a chance.
At the head of the queue
The other day, Jack Telford, chairman and biggest shareholder of Aussie-listed Gippsland, based in the Western Australian (WA) capital of Perth and boasting a world-class tantalum and feldspar deposit in Egypt, brought it to AIM. Gippsland, which lost an interim £300,000, came to market after raising £700,0000 at the equivalent of 3.5p through broker Hoodless Brennan.
That made Gippsland the first company listed Down Under to join AIM under the junior market's 'fast track' procedure. This allows a company that has been listed on a recognised foreign exchange for at least 18 months and whose last financial statement is no more than nine months old to seek a broker and nominated adviser and join AIM with no further ado.
If veteran Australian iron and steel man Ian Burston has his way, Aztec Resources, also based in WA, will soon follow Gippsland on the fast track, through an introduction handled by broker Seymour Pierce, with accountant Grant Thornton as Nomad. Aztec wants to revive the offshore Kooland Island iron project, with a claimed resource of 25 million tonnes and plans to boost this through its current drilling programme, with China and the Far East a ready market – and a likely fundraising later on.
Over in the slow lane, where due diligence is required and charged for, Michael Fotios, another antipodean from Perth, is talking to broker WH Ireland about bringing Tantalum Australia to AIM with a £3 million fundraising. This company specialises in processing and trading tantalum, a volatile price performer and key ingredient of mobile phone capacitors.
Fotios is a former mover and shaker at a larger Australian mining group, Sons of Gwalia, itself listed on the full London Stock Exchange. Sons of Gwalia is the world's leading producer of tantalum and has performed well over the past 12 months, though now off the top.
Waiting in the wings, meanwhile, is entrepreneurial Chris Kyriakou, a practiced corporate player from Melbourne who floated security product concern Quiktrak Networks on AIM last year. He now wants broker Nabarro Wells to arrange an AIM float for Toledo Copper, a company with a stake in the Atlas copper properties in the Philippines.
More hopefuls from 'the lucky country' are no doubt framing plans to share their good fortune with UK investors. British stock market players have for more than a century been readier to back far-flung projects than home-grown Australian punters.
As a result of the latest mining share boom, mining companies now make up 10 per cent of the companies listed on AIM. Australian companies represent nearly 23 per cent of that group, ahead of Canadians with 21 per cent, and many British Isles-based AIM companies have a strong Australian flavour, including Griffin Mining, Celtic Resources, and Cambrian Mining.
Getting it right
Consolidated Minerals has put in a respectable showing on the recognition that it produces five per cent of the world's manganese ore from Woodie Woodie and Coobina in Western Australia. The company lifted first-half profits 40 per cent to £3.5 million and aims to lift Woodie Woodie's output above 600,000 tonnes a year.
Chinese steelmakers' demand is the driver for magnesium, as it is for iron ore. That is why Aztec argues its Koolan Island iron ore project, with direct sea access to China, could pay off well.
Indian gems are the lure for Dwyka Diamonds, with its headquarters on the outskirts of Perth. Dwyka was initially a disaster, as its hopes of securing rich ex-De Beers tailings projects in South Africa failed to materialise.
But, after losing 95 per cent of its 40p 2001 float value, Dwyka has rallied all the way to 30p. Chief executive Melissa Sturgess is now focusing its Nooitgedacht operation in South Africa on to low-cost alluvial mining and has forged an alliance with mining giant BHP Billiton to prospect for diamonds in the Indian stare of Andrha Pradesh.
Aussie-directed British AIM companies, such as Cambrian Mining and Celtic Resources and Griffin have caught investors' fancy (often after prolonged previous falls) with projects for supplying base metals and raw materials, from central Asian zinc and molybdenum to Bangladeshi coal, to a thirsting Far Eastern market. Celtic has floated a molybdenum counter, Marakand Minerals, to do the first and Cambrian is lining up WH Ireland to float Asia Energy to do the second.
UK-based investment groups with significant exposures to Australian mining companies have also been in demand. Notable are Golden Prospect, headed by British entrepreneur Malcolm Burne, and Web Shareshop and Tiger Resources, both headed by London-based Australian investor Bruce Rowan.
Getting it wrong
The Australian list on AIM also contains a few horror stories to remind investors of the need to be selective. AuIron, headed by the well-remunerated Neill Arthur, raised a then-record £8 million on AIM at 25p in 2000 on the strength of an impressive-sounding low-cost steel-making project in South Australia, but was de-listed last year after this was belatedly found to be technically unfeasible.
A remnant of the company has been, with unconscious irony, re-named Felix Resources. It is now looking at the Yarrabee coal prospect in Queensland and the long-canvassed Ballymoney lignite project in Northern Ireland.
WH Ireland brought Gympie Gold to AIM with a fanfare at 30p at the end of 2001 with gold prospects in Queensland and an exciting coal venture, Southland, which, the company insisted, could make millions. In the event, scant progress was made and administrative receivers were called in after a Christmas-holiday fire at Southland.
Murchison United, headed by the entrepreneurial Paul Atherley, came to AIM in 2000 at 30p, courtesy of Evolution Beeson Gregory, and doubled on hopes for the Neves Corvo copper and zinc project in Portugal, a joint venture with Rio Tinto, where Murchison had the management contract. Atherley vowed he would ensure its profitability by drastically pruning the workforce, but the Lisbon government abruptly vetoed the arrangement.
Murchison languishes at 0.85p. The company has slashed its debts, but still has liabilities on its Renison Bell mining plant in Tasmania.
Country risks
The discomfiture of a handful of Australian companies on AIM does not mean that they have a monopoly of such setbacks. Many of their more ticklish problems have arisen far from Australia itself.
The demise of Navan Mining and the twilight of Gold Mines of Sardinia, with its operations merged into Italian-backed Medoro Resources to 'overcome political obstacles' at its Furtei mine, show that UK-headquartered mining ventures can go just as badly wrong.
Operating in some countries can bring unexpected problems and not only Spain, Portugal and Italy. When broker Williams de Broe floated Perth-based Centamin Egypt, headed by Aussie broker Sami El-Raghy, at 6p three years ago, the company raised high hopes with its Sukari gold project in the Egyptian desert.
Lately, development has been stalled by problems in obtaining licences for key staff to work on the project. At 11.5p, the shares are well below their peaks but still nearly twice their float price.
Taking the plunge
Mining companies the world over are exposed to currency risks and the recent weakness of the US dollar has caused problems to many, since their product is almost always dollar-denominated but their costs are not. Since October the Aussie dollar (once dubbed 'the Pacific peso') strengthened from A$1.5 to the greenback and has since eased to A$1.35, while hovering around A$2.4 to the pound.
If you do not mind the currency risk or are smart enough to play it, some of AIM's Australian miners could still reward a punt. Consolidated Minerals at 50p, Aztec (now the equivalent of 6p) and Dwyka at 22.75p should fit the bill.
Some of the more promising Australian miners, such as Newcrest Kimberley Diamonds and Perilya, have not bothered with London quotes. But, while the mining share market remains buoyant, Aussie-flavoured UK companies, such as Cambrian at 64.5p, Griffin at 24.75p, Celtic at 453p and Monterrico at 307p at could also find continued favour.
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