Ground Control to Major Tom

The world's top 20 listed miners and top 20 oil names have now seen $3,3trn worth of market value evaporate into the great blue sky.

The world's top 20 mining stocks have now lost a weighted average of 68% of market value, translating into a negative $1,1trn. Shenhua, the big Chinese coal miner, has contributed $176bn of red ink to this, and Vale, the world's biggest miner of seaborne iron ore, $156bn. The two stocks are down 79% and 74%, respectively, from peak prices.

Russia's Norilsk, the world's biggest nickel miner, is the biggest percentage loser, with a stock price now 84% off peak levels. Numbers like this, some even exceeding 90%, are increasingly found among junior and exploration stocks, as the global credit, equity and commodity crisis continues to exert deadly squeezes.

Measured on the same basis, the world's top 20 oil and gas stocks have lost $2,2trn in market value, from peak prices. These stocks were holding up relatively well until this week, when heavy selling of Exxon Mobil, the world's most heavily capitalised stock of any kind, and Chevron, both components of the Dow Jones Industrial Average, set in. The weighted average loss for the top 20 oil stocks is now 58%.

Looking more broadly across the resources sector, listed oil, gold and platinum stocks have lost the least value, when measured from peaks. The losses, are, however, significant, and start around the 50% from-peak level. Listed gold stocks have lost an average 60% of value, translating to a negative $252bn in market value terms. The Tier I global gold producer sector, with 13 members, has lost an average 53% of value, translating into a loss of $114bn in market value.

As of Friday, Harmony was just a third off its peak value and ranked as the so-called best performing gold stock in the world, and one of the best performing stocks of any kind in the world. Prices for dollar gold bullion are the least under performing across the broader commodities complex, which goes some way to explaining why some listed subsectors have surrendered more than 80% of market value, when measured from peak prices.

Source: Analysis by Barry Sergeant - moneyweb.co.za

80% of the worlds Platinum Reserves in Southern Africa

Platinum-group metals (PGMs) were a “very much misunderstood” group of metals that “the world just wouldn't operate without”, platinum mining doyen Brian Gilbertson said recently at the listing of his new Pallinghurst Resources company on the main board of the Johannesburg Stock Exchange (JSE). 

Gilbertson said that, while the use of platinum in automobile catalysts and jewellery was well-known, what was not as well known was the fact that without PGMs there would be:

* no fibreglass;
* no refining of oil that put petrol into vehicle fuel tanks;
* no nitric acid and therefore no nitrogenous fertiliser to grow crops; and
* the absence of an estimated 20% of all consumer products, that either contained PGMs or required the metals in their production.

“It’s a critically vital element, and 80% of the world’s reserves are here,” he said of the preponderance of PGMs in the Southern African region.

“It’s a set of metals that has a wonderful future for the years ahead,” said Gilbertson of the industry that provided his "first serious job” in the late 1960s.

Pallinghurst, which made its JSE debut at R7 a share as a large volume of equity was transferred from the Bermuda exchange, had two platinum projects that Gilbertson believed the company would be able to develop “very successfully”.

Both were on the western limb of the Bushveld Complex, one was in the Moepi group, which was being acquired, and the other at Magazynskraal.

In listing, Pallinghurst was honouring a commitment to early investors that the company would list in Johannesburg.

From the outset, Pallinghurst had sought half a dozen opportunities in the mining industry that investors had not fully recognised and that could be “turned around” in order to realise their full value.

“We have four at the moment,” Gilbertson told Mining Weekly Online.

Besides platinum, a second would involve the rebuilding Faberge as one of the world’s iconic brands, the third was to build a business in colour gemstones that was “absolutely booming” internationally but without the required consolidation and investment, and the fourth was in manganese and other raw materials needed for the making of steel, which was an economic growth prerequisite.

“We have acquired a very interesting opportunity in manganese,” Gilbertson said, adding that he was not ready, at this stage, to talk about the “one or two” other areas into which Pallinghurst might move.

On the cyclicality of the resources business, Gilbertson said that the opportunities had to be built in such a way that they were beneficial to investors irrespective of whether the cycle was up or down.

World growth was dependent on steel, platinum, copper and aluminium.

“Fundamentally, the outlook for decades is really positive. It’s really hard to see prices going back to what they were 20 years ago. Input materials are higher priced, there are no cheap easy-to-mine deposits. So fundamentally, commodities is a good place to be in for a long time,” he said.

COLOUR GEMSTONES

Until a decade ago, pure white diamonds were in widespread demand, but increasingly colour gemstones were coming into favour.

The windows of jewellery stores in London and Paris were now resplendent with emeralds, sapphires and rubies and even diamonds had moved from white to champagne and pink.

“It’s like moving to colour television from black-and-white television,” he said.

Fine rubies, sapphires and emeralds were achieving as much per carat, if not more, than the finest diamonds.

He saw great opportunities to develop this further not only in coloured-gemstone marketing, but also in mining.

“De Beers a century ago brought order to the mining diamond business, but in colour gemstones it appears to be artisanal mining with people almost coming out of the bush with a bucket and spade to mine it,” he said.

Despite the lack of investment to make mining efficient, the margins were higher than in diamond mining.

“There is a great opportunity to do the kinds of things in coloured gemstones that De Beers did so successfully a century ago for diamonds,” he said.

Pallinghurst had acquired an important stake in Zambia, which produced 20% of the world’s emeralds.

In the few months that the company had been involved there, output had improved materially.

“You will be able to track an emerald from that mine to the date that it was sourced and you will know that it is ethically sourced. The very finest ones will have embedded in them the Fabergé brand,” he said.

Fabergé had instant recognition among consumers and always achieved higher than its estimated value at auctions.

The Fabergé brand had been reunited with the family for the first time since the Russian Revolution and the first collection of Fabergé jewellery would appear at the Basle Fair next year.

Ultimately, luxury Fabergé handbags, eyewear and fine watches might be marketed and the first Fabergé “egg” since 1915 might be reintroduced from the reconstituted house of Fabergé, which might take the form of “something of great artistic value”.

Fabergé eggs sold at prices raging from £10-million to £15-million each at auctions, he said.

By: Martin Creamer

Published on 20th August 2008

http://www.miningweekly.com/article.php?a_id=141159