Companies: AQP    CER    GOL    LMI    MANA    OXS   

Canadian mining group Placer Dome's £860 million bid for Australian gold producer Auiron Gold has stimulated interest in substantial bid targets in a fast-concentrating industry and the possibility of a counter bid for Auiron Gold (recently quoted at 173.235p). Another Aussie, Perilya, has almost doubled to 34p since our December recommendation, and some profit-taking is in order. Durban Rooderpoort Deep has risen from 218.74p when we highlighted it in March to 342.5p, and may slow down. Another Aussie, Perseverance, is up 30 per cent, at the equivalent of 6.75p, since last week. Lonmin (LMI) and Aquarius Platinum (AQP) meanwhile look firm.

Aussie bid music to Harmony's ears

One potential beneficiary of the Placer/Auiron bid is South African gold miner Harmony, which has agreed to sell its 9.8 per cent stake in Auiron to the bidder for Placer shares worth around £78 million. At present it is likely that Harmony will either receive the Placer shares if its bid goes through or, perhaps less likely, obtain whatever any successful counter-bidder might offer.

Either way, it looks like more good news for Harmony, which, despite spasmodic strikes at some of its South African mines, goes from strength to strength. When the shares breached £10 the other day, we suggested investors who bought at 263.5p when we first mentioned them 16 months ago – or even at later mentions at 350p or 400p-plus – should take some profits but keep some for the ride.

The price has now hit £12.29p, as gold price rises and the South African rand show signs of a modest bounce from the bottom. Hold on for now.

Gems gleam in Mano's eye

Mid-June should bring new exploration results from Sierra Leone for Aim-listed Mano River Resources (MANA), which has already found 'abundant' kimberlite indicator minerals and two macro-diamonds in the Kono area of the country's east-central region. Mano was virtually the first mining company to return to Sierra Leone after its civil war ended. Its boss, Tom Elder, says: 'I am certain we shall find diamonds dykes [narrower deposits than "kimberlite pipes"] which will be economical to mine'.

Elder says Sierra Leone diamonds are traditionally of high quality. He reckons Kono stones should be worth an average $200 a carat.

Meanwhile, Mano's gem quest is going well in nearby Liberia, where it has so far found three diamondiferous kimberlite pipes. Elder argues there could be 20 such pipes within a 100 sq km area.

Mano, which recently agreed a 50-50 joint venture to look for gold in Sierra Leone with Malcolm Burne's Aim-listed Golden Prospect (GOL), has entered into a joint venture with Canadian concern Taurus. The aim is to identify kimberlite gem deposits through aeromagnetic surveying of parts of Quebec and Ontario.

Mano recently raised $600,000 (£425,000) and is likely to come back for more. Elder says this will not be until seven or eight kimberlite pipes have been identified, probably in Liberia first.

The shares have risen 35 per cent to 5.75p since we said they had further to go last month. But they remain historically depressed, which poses Elder the dilemma of when to seek the involvement of a major company to bring the projects to fruition.

The shares are speculative, but they could repay a bold punt handsomely.

Celtic pursues Aim riches

Kevin Foo, the Australian entrepreneur who runs Irish-listed mining hopeful Celtic Resources (CER), has raised £2.6 million at 13.5p a share from hedge funds run by London-based RAB Capital to increase its stakes in key projects in Kazakhstan.

Celtic will use the cash to double its holding in the Suzdal open-pit gold mine, which has measured and indicated resources of 1.8 million oz, to 100 per cent. It also wants to take its stake in the Shorskoe molybdenum project from 50 to 65 per cent.

As a result of this deal, RAB will up its holding in Celtic to 9.9 per cent. The fund group will also receive warrants to take half as much again at 16p, against a current price of 13.75p.

Suzdal produced 43,000 oz of gold last year at a cost of $140 an oz. This compares with today's market price of $320.

Celtic says it expects to produce just 35,000 oz this year, at a cost of $155 an oz. However, encouraged by promising drilling reports, the company hopes to increase output to 100,000 oz a year by late 2003.

Celtic, whose shares surged from last year's 8p low to a recent high of 15.5p, hopes RAB's backing and its own Suzdal optimism will ensure a successful Aim launch in July. The shares have marked time lately, but support seems to be building in the market. They are worth holding on to, or buying fresh, on a medium-term view.

Oxus lines up finance

The other day, Aim-listed Oxus Mining (OXS), another central Asian gold prospector, launched a £5 million placing and open offer at 10p a share. It hopes to build the first phase of its Amantaytau gold project in Uzbekistan.

Oxus shareholders have been offered 52 per cent of the placing, which is fully underwritten and handled by Brown Shipley.

Oxus, whose shares have fallen a long way from last year's 33.5p peak, needs to raise the equity funding in order to raise another £11 million, including a subordinated insured debt facility. All of this is needed as a condition of a £22 million project finance facility agreed recently with banking group Société Generale.

When Oxus raised £8 million at 30p a share some time ago, market rejoicing soon gave way to the realisation that it needed much more to proceed with Amantaytau, and the shares plunged to 6p. When the present funding is complete, Oxus and its advisers claim it will have enough money to construct a 1 million oz heap leaching project at Amantaytau.

The company says it expects to be in production by mid-2003. At 11.75p, the shares have speculative appeal.

Hedging horrors

With gold up again to $320 an oz, there is fierce speculation about one or more major Wall Street house being dangerously exposed on forward positions in the perverse yellow metal.

There is talk of frantic buying of $340 gold call options and similar moves.

It is also suggested that some big mining companies, such as Barrick, which use derivatives extensively, could be feeling uncomfortable.

If companies can produce enough metal to meet forward commitments profitably, they may forgo profits but should not lose.

If they have derivative contracts that involve margin calls from the banks, they could have problems – just as they could if they have sold forward more than they can produce and have to buy in the market. Dealers suggest a move to $350 could impose a tough bear squeeze on some miners and investment groups.

There is also the problem of US accounting rules that force companies to reflect the change in the market value of their hedge books in their profit and loss accounts – taking losses as gold rises. Some, such as Durban Deep, have raised money to buy-out their forward positions.

To date, one of the most spectacular derivative victims was Ashanti (ASND), which took a massive paper hit, although its cashflow remained positive. Ironically, a big hedge-induced collapse – especially of a major finance group – could cause the sort of panic that is good for gold.