Adamus Resources (ADU.ASX) & Endeavour Mining Corp (EDV.TSE) merger

Its not really a blue-chip proposition, however the forthcoming merger of Adamus Resources (ADU.ASX) and Endeavour Mining Corp (EDV.TSE) strikes me as a good deal for all concerned because:

1. The merger will raise the ranking of two gold stocks - so more attractive to institutions

2. The two listed entities will be on two stock exchanges - at least

3. The two companies are a good fit - Endeavour is cashed up

4. They will be able to wipe out a hedge book

5. They have a lot of upside from project expansion and exploration

6. The gold price can be expected to rally in coming months as uncertainty arises over the recapitalisation or debasement of the EUR. I'm expecting gold to reach $2500/oz.

7. Benefits of a diversified mine operator

Anyway, this seemed like a compelling time to buy an emerging gold stock, even if I was a little late in doing so. I've been focused on other things lately with the election in NZ, and the preparation of a book. In any respect, this is my first stock investment in a few months.

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Andrew Sheldon www.sheldonthinks.com

Rio Tinto alumina spin-off a dog listing to retail investors

The financial 'vultures' are circling. What type of asset is well-suited for a listing on the NZ stock market? A dog like Rio Tinto's alumina assets? You watch as a number of large investment bankers swarm to engage in a capital raising for this 'spin-off''. Small investors will be offered stock and brokers I guess will be looking for a very lucrative 7% commission to cove their asses. Why would they jeopardise the reputation of their company? Perhaps because they work on commission? Perhaps because they have performance-base options which encourage them to think short-range.

I have already commented on the quality of these assets being sold off by Rio Tinto. One has to wonder whether these financial companies actually insure their exposure to these 'clients' in terms of their handling of these capital raisings. Of course these investment bankers have not done anything wrong yet by showing interest in the sale of their assets....but what exactly will they be getting paid millions for? To paint an objective picture of the assets for sale? I don't think so. To create the illusion of quality. Remember, like like POLITICS 101, perceptions are more important than facts.

You could well argue that any asset is a buy at some price....but this asset will be offered to long term investors, not day traders looking for stag profits.

I've seen this all before. I am reminded of a company called Queensland Magnesium which was raising capital in Australia about a decade ago. As an analyst at the time working for a broker, I noted that the major financial institutions were earning a 7% commission in order to sell this dog. Why was it a dog? Well, it was the nature of the magnesite market - the raw material for producing refined magnesium. I was negative about the project as a mining analyst. In fact - very negative. My boss said that they would not recommend it, but if the investors wanted it, then of course they give it to them. Rest assured that no stockbroker selling such a 'dog' to clients was going to knock back the opportunity to make 7% commission. In most cases they would typically get only 5%.

PS: Queensland Magnesium Corporation went broke within the year if I recall correctly. I'm a bit hazy on the dates, as this was a decade ago. Shareholders lost a great deal on that deal. The way markets are regulated, there is just utterly no sense of reality. The risks are not being borne by the people who should be bearing them; whilst some law suit is destined to hit a corporation's current shareholders long after the parasites have taken off with their stock options. Just consider the current example in Australia. There is a legal firm taking a class action against the banks over their misappropriation of bank fees. Who will pay? The executives who got stock option bonuses at the time - or current executives. We teach our children that their are consequences for their actions. Where are the consequences for the executives who cause systematic pain across a nation? Where are the consequences for the politicians who sanction or facilitate law changes which help these executives to be corrupt legally. We have ombudsman to ensure that government depts and corporations act in compliance with the law. But what is the law is skewed to allow people to profit 'legally' but immorality?

That is why I have a concern about sanctioning the election of Don Brash, the leader of the ACT Party, the former leader of the National Party and former Governor of the Reserve Bank of NZ, for this 2011 NZ election. His ignorance is woeful...though he does respond to my questions; at least until they become uncomfortable. Here is my dialogue with Don Brash about the fiduciary duties of Reserve Bank governors and governments.

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Andrew Sheldon www.sheldonthinks.com

RIM likely to find support

Research in Motion (TSE:RIM or NASDAQ:RIMM) is a stock that has emerged on my radar screen. The company's flagship product is the Blackberry smartphone. This phone has always been very popular with the business community, and we think the company is likely to have a resurgence, but perhaps under Android or Windows OS, or both. i.e. Letting the customer decide. It was never really software that distinguished it in the market was it? And how could you go wrong by adopting the same software as your competitors with a brand like Blackberry. There are other reasons as well:

1. The market is abuzz with tablets and touch screens. These are marketing gimmicks, and RIM is right to not get bedazzled by them. I can touch type far faster with fingers than I can with a touch screen. Buttons have edges; screens don't. I have never understood the appeal of these tablets either. They are tomorrows dinosaur. Expect netbook, mini-laptops and full-size laptops to dominate. Touchscreen is a fad with limited use.

2. Trading on low multiple: RIM is currently capitalised at $28 billion, it has $2billion in cash, and a PER of just 4.7 according to Google Finance.

3. Upside is huge. The market for Blackberry's are a discerning crowd. I personally prefer the Nokia E5, however people can expect a similar experience from RIM in forthcoming models.

Expect their new releases to grab sales from loyal business customers, i.e. Might it be selling off another 25,000 units to GM? I think so. These customers, unlike the retail customers, are sitting on the side, and not just for RIM's new product, but for new Android applications to justify dumping their old phones.

For this reason, I am expecting some good news from RIM in coming months. But what would I know....I am just a mining analyst who loves my Nokia E5. Want more info on RIM - I am responding to this story and Google Financial data.

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Andrew Sheldon www.sheldonthinks.com

Silly acquisition for BHP-Billiton

This is a silly acquisition by BHP-Billiton. If you are going to invest in might oil & gas prices they should be looking at greenfields areas, or green technologies. For example, they ought to be exploring offshore NZ or India (as BP is doing). There is also compelling reasons for it to enter algal technological development, though it might well argue that it makes more sense for it to just purchase the technology when someone else has developed it. The problem is - the technology might be acquired before they can even get their hands on it by one of their competitors. Might it be difficult to know who will be the leader? My guess the oil company throwing the greatest amount of money at it..... at least you will get a market advantage....rather than throwing it away on market speculation.

The reality is that these companies are more interested in building on economies of scale, adding market premiums rather than creating wealth. They are accreters of assets, not builders of assets. Which means they just take advantage of cheap capital in global capital markets to add value, which is passed through to shareholders after they take their bite. Yes, it was always about the CEOs....leave the risks to the small enterprise which really build wealth. The small companies find the oil; the large companies spill it around the world's oceans.

OK, a little unfair. :)

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Andrew Sheldon www.sheldonthinks.com

Discretionary showroom retailers are under threat

The shift to online commerce is a shift that major retailers of discretionary products have failed to anticipate. They really did not appreciate their vulnerability, and this is true for several reasons:

1. Economies of scale - Online sellers have far better economies of scale

2. Superior profit margins - Online sellers have slightly higher distribution costs, but they have much lower capital overhead, staff costs and warehousing costs. They don'y have to sit on as much dead stock.

3. Sales exemption - In many countries online retailers can avoid sales taxes, whether they are claimed legally or illegally by the buyer of the goods.

4. Recession - People are looking for discounts more than ever.

5. Security - People are feeling more and more secure buying product online, and are broadening the range of product they buy online.

6. Less staff turnover - Showroom retailers rely on cheap youths whose jobs are seasonal, and the consumers buying habits are also seasonal. Online websites can be internationally integrated.

7. Fewer product returns - Online buyers are less likely to return products.

8. Product disclosure - Online sellers have a far easier and more effective product and sales policy disclosure. There is a tendency for customers to just trust major traditional retailers.

9. Regulation - Online sales are regulated by the market. Online sellers are far more accountable than showroom retailers because unhappy customers can get online can discredit a business, and any maligned customers soon establish a presence. If I was unhappy customer of Harvey Norman, I might find that the company has technically done nothing wrong, i.e. There are loopholes in arbitrary statutory law, or I might find that the government offers few resources to assist retailers. For online customers, they need only search for 'RETAILER, scam, bad service, complaints' and see what comes up, or go to forums. Once you high a reliable supplier, you can stay with them, or keep searching.

10. Online sellers stock the latest products and at reasonable mark ups. I suspect that manufactures have dropped the discrepancies between major product markets. i.e. the latest digital camera in Japan might be $500, but in Australia it will be $1200. Over time that price margin will erode, but you will always be buying old product.

Consumer Backlash: Some traditional 'showroom' retailers are lobbying governments for tax concessions, and are being attacked by consumers who oppose their lobbying to increase taxes on the consumer. Those in the firing line in Australia include Harvey Norman, Myer Group, and others. These companies and others have set up a coalition to lobby the government. The problem is - they only have lobbying muscle so long as they are able to create jobs, and they are a dying industry who only preserve some relevance for those elderly people who have not grasped the internet, and who don't have grandkids to help them. Expect tools in the future to help those elderly people adjust, i.e. Some product search feature which trolls the databases of major online retailers.

The reality is that any consumer complaining about the high mark-ups of Australian retailers are not likely to pose much of a threat to these retailers, simply because they are the people already enjoying the benefits of online buying. The problem is the lobbying by the retailers themselves - they are effectively telling customers they can save 50-80% by buying online. They are posting nationwide newspaper advertisements to tell them. Basically any 'showroom' retailer selling discretionary items is going to suffer because people can afford to wait a few weeks for these items. The biggest exponent of tax reform has been Gerry Harvey, and he is being savaged in the traditional and social media for his support of adopting the GST upon foreign online sales.

Looking at the stock prices for these two companies -Myer and Harvey Norman - and it is safe to say that these businesses will be a shadow of their former self, and will eventually disappear. You soon realise that many of the services they provide can be offered by online sellers as well, if they ever needed to.

The Australian 'showroom' retailers are particularly vulnerable if they don't own the stores and since they are not integrated in with railway developments. The good news is that the Australian economy is very strong, and there are a lot of wealthy who are not terribly discerning about where they buy from, and thus not particularly fuzzy. That price gap will be closed. In Japan, 'showroom' retailers like Sobu and Toban are vertically integrated with the ownership of railways. I think people will want to go out and 'window shop', as they do in Japan, but I think you will find people increasingly just walk into the store, kick the tyres, eat at a restaurant and go home, knowing that they had a nice day out "virtually" shopping, before they do their "real" shopping online. Harvey Norman, CEO of Harvey Norman Ltd, attributes this trend to the 10% tax. Nonsense, its the least significant factor.

For my thoughts on Gerry Harvey's tax lobbying - see here.

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Andrew Sheldon www.sheldonthinks.com