The markets had been collapsing all week and then the Fed moved on Friday. It didn’t take much to figure that the ASX would bounce big-time on Monday; the futures indicated around 200 points, and so it was.
To some, Monday may have seemed a last chance to get out of some of those mining stocks before they slid again.
Wrong, again, to judge by the continuing resilience all this week.
And it was a very understandable mistake. It looked as if the exploration sector was able to get the big squeeze. Two brokerages pulled their underwriting offers (for the Maximus Resources raising and the Eyre Energy initial public offering), seemingly a sign that chequebooks were being slammed shut all over town.
We panicked too soon, it seems.
Two announcements that came out, largely unnoticed, in the middle of the week give heart that, if we are facing a “we’ll all by rooned” scenario, the time is not yet quite ripe.
First, Synergy Metals said it was raising $7 million with backing out of Singapore.
The white knight was American Orient Capital Partners, putting up the money so Synergy could continue drilling its gold, silver and base metals targets in East Gippsland.
AOC Partners is putting $5 million worth of Synergy shares to their “high net worth Singaporean clients” and underwriting a non-renounceable rights issue to Synergy shareholders for the other $2 million.
If any of the horses were going to be scared by the outlook for the mining industry, you’d have placed the Asian ones as among the most likely.
The fact the Singaporeans stayed committed to the plan suggests they believe the China story is still intact, and metals demand has only one way to go.
The other straw in the wind concerns DiamonEx.
JP Morgan Asset Management has acquired a 9.9 per cent stake in the company ahead of production starting early next year at the Lerala diamond mine in Botswana. J. P. Morgan spent $4 million to become the biggest shareholder in DiamonEx.
So the money isn’t drying up.
Now Puru Saxena is not one of your bulls. The publisher of London-based Money Matters came out overnight saying the market had tested its lows for the moment and the advance should resume.
“Who is there left to sell?” he asked, noting the capitulation in the market had peaked last Thursday and that gold and silver shares had been whacked in last week’s rout, which was inconsistent with the bullish monetary and economic backdrop for precious metals (namely, rising monetary inflation worldwide, imminent interest rate cuts in the United States, and expanding credit spreads).
“Investors are advised to accumulate major positions in resources (miners, energy stocks, uranium stocks, precious metals stocks) and the emerging markets during this widespread doom and gloom,” he wrote.
A more complex picture comes out of the latest Commonwealth Bank weekly commodities review.
The bank’s strategists believe copper prices are likely to be volatile in the near term, but possibly moving upwards. Markets would be alert to any further disruptions due to labour disputes, but in the longer run moderately lower prices seemed likely.
Lead would remain volatile, but with significant declines over the coming year as several large projects come online.
Nickel would be down moderately in 2008, with further price falls in 2009 as more mines come into production; similarly with zinc, although there could be a short-term rally.
All in all, then, no immediate crisis in the resources sector if you go by all these factors.
And yet, with the Fed likely to lower interest rates, and central banks pumping liquidity to keep the global boom show on the road, some further panic down the line should not – and probably, cannot – be ruled out.
Neither MiningNews.net nor the author implies any recommendation regarding the shares mentioned. Investors should seek advice from a professional financial adviser. The author does not own shares in any of the companies mentioned.
