Saturday, March 5, 2011

Leveraging off the Big Boys...

It's not too often that I mention the likes of BHP Billiton (BHP) or Newcrest Mining (NCM) but today is a different day.  Having said that, NCM did manage to have an excellent day yesterday with a move up of $1.79 or a lazy 4.68% after a market update that included the doubling of an estimate at it's gold project in PNG.

So why do I mention the big boys when I am usually focused on the small cap minnows?  We can learn a lot from these guys.  After all, they have large teams of analysts, reasearchers and forecasters that can assess the future global trends in commodities.  They are in the know and following their moves could be very successful.

To explain in simple terms, the most recent example is BHP Billiton and POSTASH.  It started when they lobbed a hostile takeover offer towards Saskatchewan's Potash Corp.  Suddenly there was a focus on the world food shortage and how potash and phosphates used in fertilisers were going to be in high demand in the agricultural sector.  Every potash stock has run since including Souther Boulder (STB), Rum Jungle (RUM) and Reward Minerals (RWD).  We've also seen Fortis Mining (FMJ) rush to an intraday high of $3.98 and be as volatile as I dont know what.  General Mining (GMM), a company that may suffer from bad PR has a potash project in Mongolia however it had been overlooked, not til yesterday.  That probably leaves only Transit Holdings (TRH) yet to go for a run and it's a pretty good bet that it will.

Anyway, enough of Potash as I've gone off on a bit of a tangent.  So what are the next moves of the big boys that could give us some trading ideas in the small cap space?
BHP has now decided that it's next play is shale gas and it is going to spend just under $5 billion to purchase assets from Chesapeak in the US.  An article detailing the deal can be found here.  Gas prices in the US have been depressed for some time so I think that BHP is trying to get in early whilst projects can be acquired at basement prices.  Analysts think that this is more of a long term strategy whilst waiting for gas prices to improve.  Red Fork Energy (RFE) is a company that has shale gas assets in the US and like the prices for gas it's share price has been depressed for sometime.  I couldn't help but notice the improvement in share price the last few days and the number of buyers around generally increase.  A nice trend reversal too.  RFE last traded at $0.405.  Any readers that have companies in the same vein are welcome to post a comment suggesting them.

Back to NCM.  I posted recently about the EU List of Critical Raw Materials and how it formed the basis for a substantial amount of research by me of late.  Funnily enough, one of those materials is Tungsten and Newcrest mining has recently signed a deal with car giant Mitsubishi to supply tungsten!  Newcrest's O'Callaghans tungsten project is gaining more focus and compared to BHP's shale gas possible focus NCM's play could be more of a short term winner.  This puts the spotlight on other Aussie companies with an exposure to tungsten and I like Wolf Minerals (WLF), Vital Metals (VML) and Icon Resources (III).

Vital Metals has the largest market cap of the three and has somewhat been in the doldrums for some time.  Things look like they are about to change.  Not only have the trading volumes and interest in the stock improve however there has been changes at the board level so hopefully new blood can get the company back on track.  The company has boasted in it's quarterly report that their Watershed tungsten project is gaining world wide attention so there could be some good news soon regarding some form of a deal.  VML last traded at $0.14.

Icon Resources is currently rationalising it's projects including divesting projects to focus all it's efforts on the Mt Carbine tungsten project.  It's shares last traded at $0.13 but suffers from a lack of trading and interest currently.

Finally, Wolf Minerals is only a newly listed company however their project in the UK is possibly the fourth largest owned by an Aussie company.  With tin at all time high prices and also thrown into this project this company is one to definitely put on the watchlist also.  It last traded at $0.375.

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