Over the next 14 trading days on the Australian Securities Exchange around 14 new mining companies are scheduled to list, a “one a day” rush of the sort not seen since the peak of the 2007 resources boom.
The chance of all succeeding is remote, which is one reason why iron ore and coal billionaire Clive Palmer has withdrawn his $US3 billion Resourcehouse offering until he gets a good look at the market in 2010.
If nothing else, Clive has a finely tuned nose for sniffing which way a market is moving. His original work in real estate taught him that there are days when you can sell and days when you go fishing.
Friday’s sharp fall in the gold price was a wake-up call to company promoters and over-keen stockbrokers desperate for fees that we are still a long way from stability in the markets.
Hot money, especially the 0% stuff flowing out of the US in search of a quick killing in a “carry trade” punt, can turn a market on, or off, at the flick of a switch.
Australia over the past year has been a wonderful place for international speculators. Not only have they trousered huge profits from buying high-interest Australian dollar assets with low-interest US debt, but they have also enjoyed exposure to one of the world’s strongest stock markets, especially in the resources sector.
It is the remarkable recovery in the Australian stock market that has encouraged the logjam of floats at the door of the ASX listing committee.
To wrap a few numbers around the strength of the 2009 boom, let’s start with the ASX metals and mining index, which has risen by 65% since this time in 2008, one of the fastest upward moves ever.
Or how about the clever investors who snapped up a handful of BHP Billiton shares at $26.40, popped them in the top drawer of the desk and today are sitting on a paper profit of $15 a share, or 56.8% – and that’s for the world’s top resource stock.
Down among the smaller miners the rebound has been absolutely phenomenal, with rises of more than 200% a common occurrence.
Silver Lake Resources, a small but high-quality gold miner, has stormed up from 15c to $1.29, a 760% return for shareholders. Iron Ore Holdings has rocketed from 13c to $1.59, a gain of 1123%.
Small companies are expected to perform like that when they make discoveries. It’s the remarkable revival of the big miners that has added interest to the resources market.
So, if the recovery has been so good, why is Dryblower concerned about the fate of the floats that are due to hit the market over the next two weeks?
In a word, fatigue.
The recovery has been so spectacular, and the year so draining, that there is a mood among investors that enough is enough, perhaps best summed up in an Aussie variation of the British investment maxim, “sell in May and go away”
The Australian version, after the traumas of 2009, could easily be “sell in December and don’t remember”
Last week, which saw the Australian market end flat, gold fall and the US dollar rally on better than expected employment data, was an early warning that investors are packing up for their Christmas break.
Interest in the market is fading. Fishing beckons.
Investor fatigue was apparent in Friday’s listing of Ethan Minerals, which issued shares at 20c and closed its first day at 19.5c. Management hailed the float a success, because the money is in the bank. Most subscribers in what was said to have been a heavily over-subscribed prospectus will not agree.
That’s why Dryblower looks at the ASX float list with concern, especially after considering Clive Palmer’s decision to walk away, and despite the success last Wednesday of the Raisama float.
For curious followers of floats, the game – the ASX reckons – this week kicks off with today’s (December 7) listing of Scandinavian Resources, followed on Wednesday by Stanmore Coal. Then comes Australian Minerals and Mining on Thursday, with a double-header on Friday when Gascoyne Resources and General Mining are quoted for the first time, and with Rubianna Resources slipping in somewhere, having missed the ASX’s listing date of last Friday.
Next week’s float stampede is scheduled to start with Australian Bauxite on Monday, then Ausgold on Tuesday, Victorian Gold and Elementos on Thursday, and another double-header on Friday, when Tusker Gold and NT Resources are expected to list.
In Christmas week, we are expected to see Q Copper and Kimberley Metals get their first quotes, with Energia Minerals ambitiously listing on the second-last day of the year.
Now you understand why Dryblower reckons the float flood has become float fatigue.
*Dryblower is a weekly column on ILN’s sister publication MiningNews.net.