This post has been updated with a response from Dan Denning at the bottom.
I spent a little time with the ‘ol Thinkolator churning through the several stocks touted by Dan Denning for his Australia Resource and Mining Report — this first one was one of the more interesting ones, and I worked that out earlier if you care to catch up with the group.
A couple of them were also either not that interesting, or too light on the details for me to figure out without much more motivation, so we’ll skip over those. This is what I did figure out:
* The Best LNG Stock in the World
Here’s what we’re teased with about this one …
“This company is easily the best natural gas play in the world. It’s got a lock on Australia’s most valuable Liquid Natural Gas (LNG) projects. Astonishingly – though it may be the best energy stock to ride China’s boom – it is nearly unheard of in America.
“At current prices, it belongs in any long-term energy portfolio. Its recent deal with PetroChina could add as much as $10 billion to its market cap, once the deal is final. And there may be many more deals to come.”
So … not a huge amount for the mighty Gumshoe, but I can tell you that this one must be …
Woodside Petroleum (WPL in Australia, WOPEY for the US ADR).
Which, for someone down under, might as well be like saying “ExxonMobil”
OK, that’s an exaggeration … but this is one of the dozen or so biggest Australian companies, and it is indeed an oil and gas leader, as well as a company that’s expanding very aggressively into LNG to feed the growing Asian markets. I have never looked into them in any detail before, but it’s a big company with real earnings, and they do have an actual ADR, albeit one that trades OTC.
Perhaps some of my delightful Australian readers would like to pitch in with a Woodside opinion — all I know from a quick glance is that the shares do trade at a significant premium to most companies in this sector, which I assume is due to the growth they’ve shown in recent years and promised for future years. If LNG prices remain high and demand keeps increasing with the development of new LNG terminals, particularly in China, things might look bright indeed for these guys … though at their size I wouldn’t look for really dramatic returns in the short term. It does pay a decent yield of 2.5% or so.
The next one …
A “Pick and Shovel Play with Enormous Potential”
Here’s what our friend shares with us about this one …
“Mining services and infrastructure is one of the fastest growing industries in Australia. It would have to be, with all the digging going on.
“… this ‘Pilbara Profit Secret’ stock was originally established as a subsidiary of diamond producer DeBeers. Today it has 5,000 employees and operates a fleet of 1,080 drilling rigs that offer clients earth, rock core, and rock chip samples for mineral analysis purposes. It operates in a US$2.5 billion minerals drilling industry. Customers include Anglo American, Barrick Gold, BHP Billiton, Phelps Dodge, Rio Tinto, Teck Cominco, Xstrata and Zinifex.
“Currently this stock is criminally undervalued at A$2.16 – but it won’t stay that way for long.”
This one, the Thinkolator tells us, is …
Boart Longyear (BLY in Australia, BOARF on the pink sheets, not an ADR but apparently tradeable)
This is indeed one of the larger mining services companies — and the shares were at A$2.16 a little while back, but, as promised, did not stay there for long … they’ve fallen precipitously, you can pick them up now for about A$1.85.
Plus, it’s just an awesome name. If I ever need a stage name, Boart Longyear’s going to be it.
This one seems a bit interesting, too — though not particularly as an Australian play, according to the company their business mix is much more international. “Asia Pacific” revenues, which I assume also includes their sales at home, are about a quarter of revenues — Canada and the US together make up half of sales. So I don’t know that this is particularly the play to make on just Australian mining expansion, but it might be interesting as a play on mining and exploration growth overall.
The reason it was founded as a DeBeer’s division, by the way (this was way back in 1890), was to develop a new market for industrial diamonds in drill bits. Boart does have a small dividend, but the red flag that comes up in a quick perusal of their info is that they appear to have buckets of debt … so if you’re interested, that might be worth a look-see as you cautiously investigate.
And, finally … our last Pilbara Secret company (or at least, the last one I’m tossing out for you today)
“The Iron Ore Minnow backed by the Might of Mitsubishi”
Again, the clues are somewhat limited for this guy … but we do learn a bit about them from our pals in Australia …
“It’s not just the Chinese and the Russians who are invading the dry continent. The Japanese have been tapping into the rich vein of resources down here for years!
“Recently the Mitsubishi Corporation became a significant investor and partner in a little known Australian mining junior. They’re sitting on a sizeable potential iron ore resource of 380mt and 62% Fe . These local mining mavericks have also just signed up South Korean steel giant POSCO as a potential development partner.
“Chances are more lucrative deals will be struck in 2008. You’ll want this stock sitting snug in your portfolio before that happens.”
Again, scanty clues … and again, the mighty Thinkolator churns counterclockwise and flushes out the answer:
Murchison Metals (MMX in Australia, MUMTF on the pink sheets — again, not an actual ADR but does trade at least a bit)
This one I know even less about than the previous two, but it did get a big infusion from Mitsubishi for it’s iron ore, the resource that was teased is the second phase of their Jack Hills project. They also just last week bought some new resources in the Pilbara, so this teaser is perhaps even more apt than they thought when they first sent it out. The shares have jumped around wildly over the last six months or so, largely because of a failed takeover bid they made for iron ore rival Midwest, but have been hovering right around A$4 since February. The company is profitable, though priced pretty dearly thanks to the growth potential of their current and prospective projects.
Don’t know enough about Murchison to venture much of an opinion, but I’m happy to hear yours — certainly it’s an iron ore company, it’s growing, and it’s making a profit, which might be enough for some.
So … that’s what we’ve got for the balance of our little Australian Pilbara adventure … makes me miss the good ‘ol days of one ad with one teaser in it … ahhh, the Gumshoe grows lazy in his dotage.
Happy investing, everyone.
And if you’ve got something to tell us about your favorite Australian investment ideas, or your best mining plays …
… or if you just want to ridicule Dan Denning and these more obscure investments and say, perhaps, “hey, keep it simple, buy BHP Billiton and go to bed early!”
Well then, by all means … share. It’s just us friends here on the ‘ol internet, we’re here to listen.
P.S. I just got an email from Dan Denning, who noticed that I wrote about his piece. He corrected a misconception that I had about iron ore quality in the Pilbara, and also added some comments about Australia and his service … I’ll copy his notes here for you in case you’re interested (I asked his permission first) — he obviously has a different perspective than I do on some parts of the business, but I’m always happy to share both sides. These are his words:
“1. the Pilbara ore is actually very high grade (62 Fe and up). Vale’s ore grades from Brazil tend to be higher in iron content, but then you have to ship it to the other side of the world (hence the ‘freight premium’ BHP and Rio are seeking over and above the contract price Vale got in Japan and Korea).
2. Ridicule me if you’d like. It goes with the business. But in point of fact, I DID recommend BHP to readers of Strategic Investment in March of 2004 at an entry price of $18.77. Yesterday’s close was $76.81. That’s 309%, if you’re scoring at home (or even if you’re alone.) I resigned as editor of Strategic Investment in May of 2006 to focus full time on the Aussie business. I attached the last issue of the newsletter I edited. You can find the track record on the back page [Gumshoe note: True]. Granted, this was prior to the big spring correction in resources in 2006. But I did recommend all those shares and ETFs as buy and hold themes for the duration of the big changes I wrote about in the newsletter.
3. I’m not a paid stock promoter. We make money selling subscriptions. And in my shop down here in Melbourne, no one can own the shares we write about. I hear it both ways from subscribers. They say if we don’t have skin in the game or aren’t eating our own cooking, how can they trust the recos? On the other hand, if we were allowed to own them, the issue of front running would come up. We avoid the issue altogether by prohibiting ownership. We publish our best stock ideas and market analysis. If people like that and the ideas are good, we make money. If not, we don’t. Our interests are always aligned with our readers…which, as you know, not always the case in the retail investment business.
4. We don’t make it too hard to decode to stocks we’re tipping. Not that your work isn’t good. But for me, the point is not to conceal some killer investment idea from readers and coerce them, against their will, to pay for it. The point is to share the ideas that get us excited that we believe are shaping markets and which give investors a leg up. Who cares if you can guess what we’re tipping? Our business gamble is that if you like how we think and follow our work, you’re willing to subscribe to get more of it. But if you don’t, that’s fine too. It’s kind of satisfying to track a share down.
5. Our resource pubs in Australia are for Aussie investors. Most of the shares we study aren’t available on U.S. exchanges. But that’s why I’m down here in the first place. I believe this is one of the few places where you have an advantage as an analyst. There are lots of companies with net tangible assets who have no analyst coverage. That means you can find a dollar’s worth of earnings selling for less than a dollar. The only other place I think that’s probably true is India, and I wasn’t willing to move there.”
I hear pretty regularly from copywriters whose work I mention, and from editors whose newsletters I talk about — I’m happy to share their comments with you when they give permission, and when they have something substantive to add or mention as Dan did here.