The last time we talked about the iron junior market was in the first half of the year. Since then, most of the best quality reserves have been bought out. China’s playing for keeps now. Midwest (ASX:MIS) went for a 53% premium. Portman (ASX:PMM) got a 19% better offer three weeks ago.
But there are still good reserves out there.
In fact, most of the iron plays out side of Fortescue (ASX:FMG), Rio Tinto (ASX:RIO) and BHP (ASX:BHP) are now back to pre-boom levels.
Guess what? You get to start from the ground floor again. So here’s a quick money-map of the iron sector. There are three to look at this month, for three different reasons.
For sheer volume overall Gindalbie (ASX:GBG) wins. It simply has more iron. The company is sitting on a bunch of scattered tenements. The best is the Karara reserve, with over 500 million tones of economically mine-able iron.
A little more organized is Mount Gibson (ASX:MGX). It’s the latest fending off takeover rumours. The company’s producing – but it’s finding more iron than its digging up. According its last reserve statement from last month it added another 2 million tonnes of iron to its reserves.
Atlas Iron (ASX:AGO) just upgraded its indicated resource by 756 million tonnes yesterday. That’s not necessarily all money in the bank. It’s just a huge upgrade in a market that doesn’t care at the moment.
Kris Sayce has an over-sold, under-loved favourite iron play too. He just told his premium small-cap readers about it.
By the way, here are two to avoid: Strike Resources (ASX:SRK) and Territory Resources (ASX:TTY). They’ve both had recent troubles with loans or financing. In this credit (and equity) market, that’s not worth the risk for retail investors. Juniors need financing.
Buy $3 in Cash for $1
And on that note, there’s one more to look at. Cape Lambert Iron (ASX:CFE).
We’ve only looked at this briefly, so we could be wrong. You’re welcome to inform us if you know better at moneymorning@moneymorning.com.au.
But after selling its major iron project to China Metallurgical, the company reckons it is sitting on $400 million in cash. It can invest that in new iron projects, or it can develop anything other current prospects.
It’s trading at a market cap of $116 million today. According to the last annual report, it has $5 million in debt.
That means $395 million in cash is selling for $116 million. At face value, you can buy $3 for $1.
Cape Lambert jumped 30% yesterday. A big shareholder is trying to replace the board. So the company is shaking things up. It’s organising a $100 million payout to shareholders too. Even those don’t seem to warrant such a massive discount to this kind of liquidity though.
What we like about it most? Basically, the stock has its finger on the investment trigger. Right now, when mining projects are selling cheaper than they have in 4 years, it has a mountain of cash to buy them with.
Australia‘s Earnings Outperform
Meanwhile, Australia’s earnings outperformed expectations at the latest annual report. Punters expected the trade balance to be $200 million in August. It came in at almost $1.4 billion.
It’s still a coal and iron story. It will be until exporting contracts are renegotiated. Cheaper oil imports helped too.
The Aussie dollar, meanwhile is trading at a 14-month low. We’ll say it again. Australia is the most undervalued stock in the global market.
Cheap Alternative Energy Gets $60m in Funds
The cheapest energy usually wins. That’s what history tells us anyway. Coal, oil and gas have always been cheaper than the rest. We had big North Sea reserves churning out black goop all through the 90s. The cheap oil kept other energies from getting started.
Now we have $94 oil in a global recession. That’s how scarce things are. But governments and central banks worldwide are flooding the global economy with money. French leader Nicholas Sarkozy is proposing a 300 billion Euro bailout now. Central banks worldwide have been flooding the economy with new money all week.
The problem? They’re like a smallish 6-year old trying to negotiate a full-size fire-hose. They can’t quite control where the liquidity goes.
It’ll go where it’s treated best. Some will head to gold or safety.
But some of it (combined with high levels of saved Asian cash) will probably return to the energy sector through speculators at some point. Peak oil will still be around when the banking crisis is over.
That’s a while away yet. But it’s time to start looking through ideas now. And the alternative energy sector has developed a lot since the last round of cheap money.
Ausra’s an interesting company. It isn’t listed, unfortunately. But we like the idea at face value. Its solar panels are cheaper than the expensive, mainstream photovoltaic technology.
Cheap energy, eh? That’s interesting. Better yet, other people think so. Ausra raised $60 million in funds this week.
Kris has one non-photovoltaic solar stock you can buy at the small caps letter. It’s gotten a lot cheaper since it made a big high too.
Commonwealth Bank Has Door Slammed in Face
Finally, The Courier Mail has answer to the question we put up yesterday – is consolidation the next step for Australian banking?
Apparently Commonwealth Bank (ASX:CBA) did bid for Bankwest – it just got shot down before the news got out. It did say it didn’t have an offer on the table. That’s because the offer had been table, rejected, and un-tabled.
So perhaps the Big Four could become the Big Three. This isn’t consolidation for a bull market though. It’s more of a survival tactic. And you can expect more on how Aussie banking will fare in the next few weeks from city insider and regular editor Kris Sayce.
Good Investing,
Al Robinson
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