Alumina Ltd (AWC.ASX) - good buy

The bulk materials like coal, iron ore, alumina have faired a lot better than the base metals like nickel, copper, lead and zinc, so one might consider Alumina Ltd (AWC.ASX) a good buy because its going to benefit from a weaker AUD, but its been dragged down by other commodity stocks. China does not have bauxite to my knowledge, so given the opportunity for Chinese (govt) owned corporations to launch takeovers, this might be expected to be a compelling takeover target. I'm a little outdated, but if you check Google Finance, I think you will find Rio Tinto and Alcoa each own a good portion of this corporation. The question is whether it would be up for sale. Interestingly Alcoa is helping the Chinese government block the BHP Billiton takeover of Rio Tinto, so maybe they are is a 'kickback' in terms of giving the Chinese a stake in Alumina.
You are going to see a lot more Chinese investment in the Australian resources sector. Its been on the cards for a long time. This slack market provides the perfect conditions for a takeover. This is the time to start learning how to pick mining stocks. Do you know the types of companies that the Chinese are going to buy? This stock is at technical support.
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Andrew Sheldon www.sheldonthinks.com

Qantas (QAN.ASX)

Qantas (QAN.ASX) has fallen like a plane in distress of late. Looking at this monthly chart, you could be thinking that around $3.20 is support. I would suggest however that the stock will be pushed down to $3.00, if only during intra-day trading, so I'd be placing orders around $3.05.
Why are they so weak? I'm not certain, but I suspect its because of:
1. Slump in business activity
2. Slump in inbound tourism due to strong $AU
3. Higher fuel prices - though I understood Qantas had a good hedge problem. Maybe its turned awry.
4. Growing domestic competition, lower occupancy rates
5. Higher terminal charges
6. End of takeover speculation. I actually dont know the reason it ended, but I think it failed.
7. Higher interest rates - airlines carry a lot of debt and Qantas bought a lot of planes in recent years.
The stock is a great trade. If you are interested in it as a long term investment, you might consider reading a recent broker report or company-sponsored presentation on the stock. Do research them because there are a lot of negatives above. Its quite possible they will go back to $2.30. What a trade its been! I remember some bad pubicity about James Strong - the CEO.
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Andrew Sheldon www.sheldonthinks.com

IAG Australia Group (IAG.ASX)

There was a good opportunity to trade IAG stock last week which I missed, though the stock is technically still in a downtrend, so there might be an opportunity to buy back in at $3.50. We can see in the charts to the left that $3.50 is an important technical support. I actually dont see alot of upside in this stock, instead I think we are likely to see consolidation. The first chart is weekly, the 2nd a weekly chart. For further information on IAG see Google Finance and my discussion forum.

BHP, RIO looking good, steel companies facing higher costs

Coincidentally, after suggesting selling steel companies Bluescope and OneSteel, I see a report out today that "Japanese agree to 65% Iron Ore Price Gain". Thats a big increase. I dont follow iron ore prices so closely, but I suggest this merely reflects the Japanese & Chinese conceding that they have to accept the annual price setting negotiation system that has been in place for decades. Until now they have avoided the system, resulting in an increasing amount of iron ore being sold into the spot market. Acceptance of the system seems to acknowledge the risks of not helping to finance new projects, as well as the risk of not securing the product they require.
Anyway, higher iron ore and coal prices is good for Rio Tinto and its takeover suitor BHP-Billiton. Both are huge producers of iron ore, though I prefer BHP at the time for its greater coking coal exposure, but there will come a time when thermal coal (Rio Tinto) makes more sense. The takeover might reflect that.
The flipside is that this news confirms my recommendation to sell off the steel companies because they will confront higher raw material costs.
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Andrew Sheldon www.sheldonthinks.com

Futuris Corporation (FCL.ASX)

Futuris Corp is looking good with its exposure to the Australian agricultural commodity/rural sector. Futuris holds a stake in Elders Finance & stock agency, as well as fertiliser to my 'limited' knowledge. Given the outlook for commodities, this is a great stock to hold. In fact now is a perfect entry given that the stock has fallen back to a solid support at $2.00. I have no hesitation recommending this stock. Join my Google Finance FCL Forum!
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Andrew Sheldon www.sheldonthinks.com

Mincor Resources (MCR.ASX) at technical lows

Mincor Resources has reached a technical buy point judging from the following chart. The fundamentals are looking good as well since nickel prices have consolidated and stockpiles have stabilised. Might the next move in stockpiles be down? I think so. See my latest post on nickel prices and stocks at http://hot-metals.blogspot.com.
The support level for Mincor Res is $2.70, and the stock is currently trading at $2.92. Based on the positive outlook for nickel, I do believe this stock is about to rally. It fell off its high very quickly, and I suggest it will provide traders with a good rally.
Join my Google Finance MCR Forum!
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Andrew Sheldon www.sheldonthinks.com

Brambles (BXB.ASX)

Looking for a trade in Brambles? The stock I suggest is going to fall back to previous support at $9.50. There is scope for a rally up to $10.75. I dont know much about this stock anymore since I recall talk of selling their pellets business, so this is purely a trade note. One should be mindful of a stronger AUD if they still have overseas investments. If they are sitting on cash, I suspect they will consolidate until the market knows where it is going.
If anyone can suggest more, I have set up a discussion forum at Google Finance.
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Andrew Sheldon www.sheldonthinks.com

Sumitomo Metal Mining (TSE.5713) Update

Having lived in Japan, I have some interest in the equity market there. Its not where I choose to buy gold stocks - I can't speak Japanese so I can't read market reports, and its not recognised as a gold (equity) market. Having said that, those factors are helping to push gold stocks here down, creating a good entry point in this correction phase. The only gold producer I know in Japan is Sumitomo Metal Mining (code 5713) on TSE. See http://quote.yahoo.co.jp/q?s=5713&d=c&k=c3&h=on&z=m. They have a good stake in the large, high grade Pogo gold mine in Alaska, plus a small high grade mine in Kyushu. Its not the best entry because they also have alot of exposure to specialty metals refining, an area I know little about, as well as nickel, which is unlikely to fair so well in the long term. These businesses might be loss-making units based in Japan, or profitable units because of strong commodity prices (ie. margins), or based in low-cost China. No idea. I prefer Australia because alot of gold stocks, under-loved, so over-sold, you can buy company stock options in these companies, the nation has no public debt, but huge private sector debt, which will keep interest rates & AUD ($A) low, keeping gold price in $A terms high. Also as other metal prices come off (ie. interest rates rise), the $A will fall. Best entries in Australia,
Looking specifically at Sumitomo Metal Mining, the chart could not get much better. There is clear evidence that the stock is finding support at this level. People will ask why they are subdued, but in fact they are responding, its just that gold equities are being knocked down by the general equity market malaise. They were up 91yen yesterday. This is a good stock for Japanese to buy. Closing price today is Y1907.

PS: This blog entry is an update of a previous posting at www.gaijinpot.com/bb/showthread.php?t=11552 in Jun'05. Since that posting the stock rallied from Y1400 to Y3200. It will be apparent that I previously recommended this stock at a higher price below. It now represents better buying. Gold stocks have been slow to respond to the bullion price increase, plus this is a stronger support level.

Australian Agricultural Company (ASX.AAC)

I have previously made mention of the agricultural commodities - and the potential of companies like Qld Cotton, Namoi Cotton, Australian Wheat Board, Graincorp and Australian Agricultural Company. Since that time, we have seen the takeover of Qld Cotton by a Singapore-based company, and AWB hit by a number of law suits. The problem is that there isnt much exposure to the agricultural sector on the Australian ASX. The bulk of farms remain private family corporations. I suspect this is about to change for 2 reasons:

1. High levels of debt

2. Drought has undermined revenues

3. Hedging debacles

4. Rising costs for inputs, eg. Fuel, fertiliser, insecticide

5. Low prices for alot of commodities

6. A strong $Aust - now $0.87 to $US

Travelling through the Northern Territory, Qld and NSW, it was readily apparent to me that:

1. Farmers in the North are till benefiting from very good unseasonal rains in May'07 even though crop farmers are watching their crops fail. Pastures in the north are well grassed.

2. Some commodity prices are up, but some are down due to drought, mixed fortunes of those crops used by biofuel production.

3. Input prices like fuel and fertiliser have increased considerably in the last 6 months

So I think farm failures are going to result in a number of new ASX listings as agricultural commodities rise. Why do I think agricultural commodity based stocks are going to perform well:

1. More takeovers - from Japanese, Chinese, local and US companies particular

2. Higher commodity prices - stronger demand for beef from Asia in particular, strong demand for grains for energy and feed, the flow through of input prices

3. Final end to the drought

4. Consolidation of family farms offering expansion upside

5. Growing speculation on agricultural based commodities by financial institutions

Its not a sector that I know much about but I would also expect trading in water rights to be brisk and I suspect a lot of money will be made there. But as far as equities are concerned, I like Australian Agricultural Company (AAC) because:

1. It is a well managed company

2. It is a pure beef exposure - pasture and feedlots

3. The outlook for beef demand in Asia I think is particularly good

4. Geographic diversity - they own 1.2% of Australia (8mil hectares), with their stock dispersed among a multitude of properties - se www.aaco.com.au

5. Improving rainfall - despite the drought, the rainfall in the Carpentaria region (West Qld) is has been increasing over the last 50 years. The paddocks are currently well grassed.

6. The prospect of the drought ending - this is already the worst drought since the 1930s

Technically the AAC chart looks good as it consolidates at its moving average. Currently trading at $2.75, with an earnings yield of just 1.1% and a dividend yield of 5%. This implies to me that the stock is only just recovering from drought-affected earnings. The clear intent here is to position in a stock that will benefit from those unseasonal rains, higher future commodity prices and any cessation to the drought - when it finally comes. Given that we are breaking 100yr records, the end to the drought cant be too far off. In case you are thinking that the drought is really climate change - consider that over the last 50 years, the locations of AAC properties have actually benefited from a significant increase in rainfall - thats in the Carpentaria region.

I personally have no interest in the blue-chip stocks or anything close to paying dividends - franked or otherwise, but then I retain some excitement for any opportunities I see. The following stocks are likewise.

1. Emperor Mines (EMP): Emperor's Vatakoula UG mine in Fiji has one of the longest lives of any in the world. I remember this company from its heydays in the 1980s, when the stock was trading at $12. Some 20 years later, it is still producing 110-140,ooooz/year, albeit at higher operating costs. Its record over that time has been chequered, but what can you expect when the prior MD was an accountant. Nevertheless this is a difficult mine. For starters its a 'hot' volcanic mine requiring refrigeration. Grade control & reserve calculations are spirilous because of the irregular distribution of the gold. The veins are thin, so mine headings are narrow. Having visited this mine, I can say workers are confronting some of the hardest conditions in the western world, excluding South Africa. Little surprise that strikes are common. The last 6mths has been shocking after a mine flooding, shaft equipment failure, high oil (thus power) costs and higher maintenance costs. The mine went from $6-8mil 6mth profit to a $33mil annual loss. The management team has abandoned the mine, opening the project to fresh ideas. DRD Gold's takeover demonstrates the value inherent in this minem having secured 49% of the equity. Conversion of their loans into convertibles suggests this might increase. Regardless, the bad news seem to be behind them. They still have a respectable 3.3Moz of gold resources at an average grade of 12g/t. The company has $6mil in cash and its debt will be reduced by $8mil if Alcaston can negotiate the sale of the Tavolu project (0.4Moz in Fiji). The Net Tangible Asset value of the company is $0.18, and the share price is $0.26. Being a significant gold producer (albeit high cost) presents an attractive turnaround story at a time of rising gold prices, particularly if they succeed in returning gold production to 140,000 oz per annum. Higher oil prices and continued operational problems pose the biggest concerns. See the chart below - I see scope for a break-out.
2. Resolute Gold (RSG): They operate 3 gold mines in Australia (Ravenswood) and Africa (Ghana & Tanzania) producing around 230,000 0z per annum. They have alot of blue-sky upside to expand resources, and I wouldnt be surprised to see a merger with Gallery Gold (GGN) to expand their market profile with institutions. They have a significant about of hedging, but expanded output will create added upside. The chart suggests the best opportunity to buy has been missed. Wait to see if resistance at $1.30 is broken, as a better entry might come yet. ie. A delayed wedge breakout.
3. Croesus Gold (CRS): CRS operates in 3 districts of WA. The company operates mines in the Binduli, Davyhurst and Norseman areas of WA. Production is currently running at 183,000 oz per annum. The company has hedged 21% of its reserves. It has recently increased its total resource base to 3.6Moz, and the company has raised $15mil through a convertible note issue to fund an exploration program in the Norseman area, as well as acquisitions overseas. The notes raises CRS cash reserves to $21mil + $4mil in investments. The project has significant upside in underground resource potential. The institutions dont like it because it lacks a large resource base and has high operating costs. The chart suggests weakness in CRS despite higher gold prices. The reason is the deterioration in cash operating costs the Davyhurst (and Binduli) operations. Their 329mil shares at 36c are worth $118mil. Look for support at 35c, otherwise weakness to 20c. See chart below.