Melbourne Cup Day... Trading will be quiet

It is that first Tuesday in November here, Melbourne Cup day!  From my experience volumes will be low today and any share price moves will be exaggerated as a result.  Whilst the ASX is open it is a non-settlement day.

Overnight European and US sharemarkets were showed modest gains and/or were flat.  Oil prices were strong, base metals were only slightly stronger whilst the gold price was weaker.  The RBA makes a decision on interest rate levels today.  Stocks which may be of interest today include:

*Resource Star Limited (RSL) - This stock has attempted to break $0.20 the last couple of days and whilst it has breached it intraday it has not managed to close on or above it.  Today could be that day.  Results from drilling of it's JV Machinga REE project with Globe Metals and Mining (GBE) and pending.  Closed at $0.195 yesterday.
*Artemis Resouces (ARV) - The stock hit a high of $0.10 yesterday before closing at $0.094.  Again, this stock is awaiting drilling results from its Yangibana Rare Earth Project.  The company stated in its Quarterly Activities report on 29/10/2010 that "The Company will release results of this drilling program once all of the results have been received from the laboratory and after the technical team has compiled and interpreted the results."

Good luck in backing a winner today.

Stocks to watch today

*Gunson Resources (GUN) - Very good volumes traded the last 3 days with levels not seen since January this year.  Buyers have been strong and the stock closed at $0.12 yesterday after hitting a high of $0.14.  GUN hired a corporate advisor a few months ago to assist with seeking offtake partners and funding for it's flagship Coburn Zircon Project.  Trading suggests a deal may be around the corner.

*Curnamona Energy (CUY) - Again, another stock with volumes traded that havent been seen for a long time.  The stock has come up from $0.18 close on Friday to $0.23 yesterday and has a tight share register.  I'm unsure what is pushing this uranium junior.

*African Energy (AFR) - I've been following this one for a few weeks now.  There's been plenty of big buyers around for some time now and it appears that the company is getting a re-rating due to it's Sese coal project in Botswana, that or theres quite a few speculators getting on board in the lead up to drill results to be released soon for this project.

Strategic Energy Resources, great exposure to Graphite

When you hear of graphite you immediately think of the material that they use to make pencils, right?  Graphite has many other traditional applications in that it is used for steelmaking and is consumed for refractories, brake linings, clutches and lubricants.  This is all a little boring thus far however the exciting part is that the global demand for Graphite is increasing as it becomes more utilised in new age applications such as fuel cells, semi conductors and nuclear energy.  Other applications also include lithium ion batteries for electric and hybrid cars.

Strategic Energy Resources (SER) is one stock with exposure to Graphite through it's Uley project in South Australia.  The company through former management and under a different name have had Uley project for some time however due to low prices for graphite the project has been under care and maintenance since 1993.  This is about to change.  Demand for graphite is increasing and the mineral has been noted as one of 14 by the European Union as critical as a result of it only being produced by a small amount of countries.  China produces 80% of the world's graphite and recently introduced taxes to curb export of the mineral.  Sound familiar to rare earths?

Strategic Energy Resources recently made a non price sensitive announcement to the market on 05/10/2010 detailing much of this information in the form of a project update.  The market took a day to respond but did push the share price to a high of $0.057 on 06/10/2010.  Since then we've seen the stock hit a high of $0.079 on 18/10/2010.  The share price has been a bit of a rollercoaster ride but it's only been in the last few days has the volume really dropped off and the share price steadied so maybe now is probably the time to accumulate.

Catalysts for the share price over the next couple of months include the possibility of a joint venture with Japanese companies and thus the recommencement of production.  Shares in Strategic Energy Resources last traded at $0.062 (12:30PM).

Counter bid for Sphere Minerals looking slim

I've posted a couple of times on the takeover bid of Sphere Minerals (SPH) by an Xstrata subsidiary (Sidero Pty Ltd) and the chance of a bidding war occurring.

Unfortunately the chances of this happening are fading and those that are holding may need to seriously consider selling on market above $2.50 or accepting the takeover at $2.50 per share.  Risks on holding this one are increasing.  Management for Sphere Minerals signed a 'no shop, no talk' clause which means that they cannot solicit any other offers (without paying a break fee) whilst Sidero Pty Ltd has extended the takeover offer period twice after acceptances have been slow rather than increasing the offer to encourage acceptances.  The other problem is that Sin-Tang, the possible other bidder, has accumulated a stake over 10% which means Sidero Pty Ltd will have to drop it's 90% acceptance condition.  Rumours are that Sin-Tang is going to announce some form of alternative proposal rather then counter bidding and the market tends to agree with the shares now starting to trade below $2.50, something which has not occurred for some time now.  One thing is for sure, without the bid of $2.50 the share price will drop.

Macquarie Harbour Mining Broker Report (updated)

• RB Milestone Group have issued an updated research report on Macquarie Harbour Mining (MHM)
• Report dated 21/10/2010
• Target: $3.92 (previously $3)
• MHM last trade: $1.25 (22/10/2010)
• Research report link

Time out

Moving house.  It's a real joy.  Unfortunately I'm going to be a bit time poor for the next week or so whilst I move into a new apartment.  As a result I wont have too much time to follow the market or conduct any research, so the posts will be few and far between.  I haven't forgotton about my readers so do drop by every so often!  See you again soon.

Toro Energy trending up

Uranium stocks are ones that have been out of favour for a while now.  The big boys such as Paladin Energy (PDN) and Energy Resources (ERA) have been trending downwards and sideways respectively whilst uranium spot and contract prices have also been doing the same.  Despite this something appears to be going on behind the scenes with Toro Energy (TOE) if the trading in its shares are anything to go on.

I briefly mentioned Toro Energy in a post at the end of August and was impressed with an article that covered the company in the Australian Financial Review.  At the time the shares were trading at $0.099.  Since this time they have bobbled up and down however trading in the last couple of days has caught my eye.  At 3pm AEST the shares are up $0.015 to $0.13 on volume of 13.7 million and these kind of volumes haven't been seen since January this year.  I believe some form of good news is around the corner.

BC Iron Research Report

• Argonaut Securities has issued a research report on BC Iron (BCI)
• Report dated 29/09/2010
• Valuation: $2.90
• BCI last trade: $1.925 (05/10/2010)
• Research report link

Prima Biomed, worth a look.

Prima Biomed (PRR) is a company that specialises in cancer treatment technologies and it's flagship product is CVac, which is used in the treatment of ovarian cancer.  It has always been a company that I have avoided.  Early last year it traded under a cent and for me it was a bit of a 'pump and dump' penny dreadful.  Anyway, the company did come to life and surged as high as $0.29 in October last year before slowly trickling down to yesterday's closing price of $0.125.

One thing that has got me interested in the company is the fact that it is seeking a listing on the NASDAQ.  This is very good news.  The ASX has only a small space for Biotech stocks and it is a sector that hasn't had any love for a long time.  The US market on the other hand has a much larger interest in Biotechs and values these type of companies much higher than Australia.  I expect that the company stock price will appreciate in the lead up to being listed on the NASDAQ because of this and it appears to have already started to occur in the last few trading sessions.  The rise in share price has also been slow and steady and not like the old 'pump and dump' days.  For evidence of this phenomenon I recommend that readers take a look at Unilife Corporation (UNS) and it's movements prior to becoming listed in the US.

Accountability to shareholders rant

As with most investors I've been closely following the rare earths scene, after all there are some big gains (and some losses) to be made from the sector.  This has involved a lot of googling and investigation into which companies may have rare earths projects that have been mothballed or simply forgotten about by the market.

I came across 3D Resources (DDD) and their website about two weeks ago.  I was interested by the quote that "3D Resources Limited (3D Resources) is a minerals explorer targeting high value commodities (gold, copper, lead, zinc and nickel) and “future metals” (platinum, palladium, molybdenum, uranium and rare earth metals) in Western Australia."  I started trawling through information on their website, announcements and reports but didn't really have any success in finding anything out.

I recommend shareholders and potential shareholders to contact any company should they have any questions or queries as after all the board (directors) are accountable to their shareholders, yes they work for us.  Whilst directors will not be able to provide any sensitive information that has not already been releaseed to the market they quite often hint or use innuendo to communicate when drilling results may be due etc.  I decided to email DDD and two weeks later, no response!  Not very good PR especially considering it "is our policy that all emails sent to 3D Resources Limited at the above email address will be replied to within 8 business hours of being received."  Directors need to remember that their wages decrease the general funds available for shareholders and owners of the company.  I understand that quite often the directors are very busy people but for a company of this size that hasnt completed any works on their existing projects for some time and every quarterly activities reports released states that 'we are evaluating our projects and JV partners' over and over you wouldnt think it would be too difficult responding to an email.

If anyone has any details of the rare earths projects (if any) of this company I would definitely be interested to hear from you.  DDD last traded at $0.032 yesterday (04/10/2010).

Macquarie Harbour (MHM) Mining Research Report $3 Target

• RB Milestone Group have issued a research report on Macquarie Harbour Mining (MHM)
• Report dated 28/09/2010
• Target: $3
• MHM last trade: $0.67 (01/10/2010 1:57pm)
• Research report link

Sphere Minerals in the media

I recently posted on Sphere Minerals, a company currently under a takeover offer with the potential to receive counter bid(s).  The company yesterday got a nice little mention in an article in the UK's Telegraph. 
Apparently Sphere Minerals shareholders have been receiving calls from Xstrata appointed staff to contact clients and urge them to accept the takeover.  I've been in broking circles for some time however I have never heard of this occurring before.

For inexperienced readers it must be noted that there is always the risks associated with takeovers not succeeding and the stock then trading lower without the support (or floor) of that bid.

Today's movers and shakers

Whilst the Aussie market is trading sideways and still attempting to stay above that 4650 level, there's definitely a lot of money to be made in the smaller cap stocks with most days now showing some top gainers with share price movements of 40% and above.  Stocks that come to mind include Northern Uranium, Orion Metals, Avanco Resources and Peak Resources.

Today Avanco Resources received much attention today with it's announcement 'Iron Ore Project Update'.  Whilst there was information confirming the receipt of the initial payment from Vale for the Trindade North project the announcement also detailed the conditions of the purchase of the project all of which we have heard before.  Those that read the announcement more closely would have come across the statement "pending drill holes assays are expected soon, with abundant copper mineralization having been already logged for many of these holes. The Company is anticipating to be able to report further results in the coming weeks." in regards to the drilling completed at the Rio Verde Copper Project.  The shares finished up $0.026 to $0.096 on volume of a massive 306 million.

Galaxy Resources (GXY) had a nice little spike in it's share price before the company decided to put it's shares into trading halt.  The company is due to provide an update on the Mt Cattlin project and future financing arrangements.

Capital Mining (CMY) showed that anything rare earths is still the flavour of the month by surging 33% to $0.12 after hitting a high of $0.15.  The company copped a speeding ticket from the ASX for it's efforts.

Finally, I recently mentioned Apollo Consolidated (AOP) in a post regarding how it could be one to watch however had reservations about the number of shares that would flood the market (issued to Patersons clients).  Well, it appears that the overhang of stock is easily being soaked up by the market.  It also appears that the Patersons clients aren't selling the stock down but rather drip feeding it into the market.  This is evident today with nearly 35 million shares changing hands and the stock only increasing by $0.002.  I dont think it will be too long before it really starts to move.

Takeover fight for Sphere Minerals?

For those that like to speculate on increased bids on takeover plays then it may be worth while taking a look at Sphere Minerals (SPH).  Sphere Minerals is a company that is focussing on 3 iron ore projects (Guelb el Aoujm, Lebtheinia and Askaf) in Mauritania, West Africa.  On August 24th the company received a takeover bid from Sidero Pty Ltd, a wholely own subsidiary of Xstrata, for $2.50 per share.  It is interesting to note that this is Xstrata's first real foray into the iron ore sector after predominantly dealing in nickel, zinc and coal in the past.

When assessing if a company is worth taking a punt on there are a few things to observe and ask.  These include:

• Share registry and existing shareholders - is the share registry wide open with a number of smaller holders or is there some big holders with blocking stakes?  A register that has smaller holders means that taking control of the company is easier and may encourage more bids.  When a major shareholder announces that they will accept the bid currently on the table than it is less likely that a counter bid will come.
• Trading after the initial bid is made - is the share price trading above or below the initial takeover bid?  If the shares are trading above the bid price then the market is factoring in the possibility of an auction or another suitor emerging.  Shares trading below the bid price may suggest the market believes another suiter may not come to the party or that there is too many conditions to the bid which may result in it failing.  Shares may also trade at a discount if it is a script (share) offer because the takeover price is not finite and is linked to how the well the bidders share price is trading.
• Substantial holder notices - these are announced to the market by the bidder.  It is a great tool to get an idea of how many other shareholders are accepting and if the bidder is gaining control of the company.  The other key is if substantial holder notices are made by a non-bidder.  This suggests that they accumulating before launching a counter offer or acquiring a blocking stake.
• Media commentary - quite often the media will publish articles detailing if there will be another bidder, this commentary is always speculation but nonetheless is good reading and though provoking.

So how does this all link in with Sphere Minerals?  The shares have constantly traded above $2.50 since the takeover bid was announced and with good volumes too.  The bid by Xstrata has failed to gain traction and with the acceptances received to date they are only holding 7.06% of Sphere Minerals.  Whilst a lot of acceptances are submitted at the last minute this holding is still small and it demonstrates that current shareholders are unwilling to part with their stock at $2.50 (and especially considering shares can be sold higher on the market).  Xstrata have realised that their takeover attempt is not moving along quickly enough by having to extend the takeover offer period by an additional 2 weeks.  Another key is that on 27/09 a 'becoming a substantial holder' notice was lodged with the ASX by Sin-Tang Development Pte Ltd, this sparks interest as to what the motives are by this company.  It has accumulated a 8.63% stake.

Sin-Tang Development is an investment company based in Singapore.  The company recently invested in Exco Resources (EXS) and last year in Royal Resources (ROY).  Sin-Tang Development Pte Ltd must have plans for Sphere Investments by raising it's stake above 10% and thus defeating the condition by Xstrata that it receive acceptances of over 90% or by doing something different otherwise it would leave the company with only one option and that is to sell into the bid at $2.50 after paying above that price on market.

Broker Euroz has put a price target of $4 on Sphere Minerals and believes that "there is scope for a competing bidder and/or an improved offer from Xstrata"

In other takeover developments Dart Energy (DTE), the company recently that split from Arrow Energy, has made a scrip takeover offer for Apollo Gas (AZO).  The offer comprises of 3 Dart ordinary shares for every 4 Apollo ordinary shares; and 3 comparable Dart options for every 4 Apollo options.  The offer values Apollo Gas at $0.79 per share based on Dart Energy's closing price of $1.05 on 24/09.

Massive investment into Rare Earths

Just when you think that this sector cannot get any hotter it was announced yesterday that Chinalco will invest $1.5 billion in Jiangxi Rare Earth and Rare Metals Tungsten Group.  The news report can be found at Marketwatch.com and Reuters.  It is astonishing and bodes well for those ASX listed rare earth companies.  Today Lynas Corporation (LYC) was slightly weaker (down $0.025 to $1.325) however Arafura Resources (ARU) was very strong with its shares up $0.125 to $1.21.

Kasbah Resources (KAS), no news, no speeding ticket...

Today Kasbah Resources (KAS) shares have raced away 60% ($0.085) to $0.225 on volume of 9.2 million.  The company has not issued an announcement nor has the ASX issued a price query to the company.  So why the surge? Tin prices have been strong recently and the Eureka Report covered the stock a bit over a week ago.  But the main reason?  Apparently the company was also covered by the Diggers & Drillers monthly publication overnight with a strong recommendation.  The copyrighted publication was posted on stock chat forum 'Hotcopper' by a member only for the moderators to pull it down.

Hartleys also issued a research report on the company with a speculative buy recommendation.

***Apollo Consolidated shares to come on

I recently blogged about Apollo Consolidated (AOP) and it's option to acquire a gold project in West Africa.  There's been plenty of interest with the shares trading good volume.  Today we received information via an announcement that the company has finalised a placement through Patersons Securities in which their clients have collectively paid $0.005 so Apollo Consolidated could raise $1,000,000.  Whilst we knew that this was coming I do believe it is reason to possibly sit on the sidelines for a bit.  200,000,000 is a lot of shares to come onto the market.  Clients of Patersons will be sitting on almost a 240% gain on their investment and that will be too greater temptation to sell. 

As an aside, access to these kinds of placements to clients show one key advantage of being with a full service broker.  As a person that likes to take full responsibility for my own trades and investment I tend to trade online for the cheaper brokerage costs however throwing a bit of business towards a full service broker will remind him/her to think of you when such deals come along.

Morning Briefs

All eyes will be on Avanco Resources (AVB) after it's surge yesterday.  The company announced that drilling confirmed 'existence of a exceptionally high grade copper zone' including one spectacular hit of '9 metres at 50.49% copper from 18 metres.'  Not all of the assay results have been sampled so there's chances there could be more good news on the way.  There's plenty of bids in the market depth this morning and the stock will probably gap up on open above $0.07.

After accumulating a stake in Northern Uranium (NTU) Conglin Yue has now moved on to Orion Metals (ORM) too.  He filed a substantial holder notice on Monday evening helping the share price along yesterday.  He filed another notice yesterday afternoon confirming his stake increase to 12.05%.

It seems like a few are catching on the to the potential of Botswana coal play African Energy (AFR).  The share price has seen some awesome gains the last week and surprisingly avoided receiving a speeding ticket from the ASX.  Today the company has announced a price sensitive update and exploration target.

Gryphon Minerals (GRY) remains in trading halt pending a capital raising.  It's no wondering the directors have decided to do so considering the share price has risen from $0.84 a month ago to last trade of $1.45.

Apollo Consolidated into West African Gold

With the gold price at current highs it seems that every junior is either switching their exploration focus to their gold projects, vending a gold project into their company or completely changing their company activites to gold exploration.

Apollo Consolidated (AOP) is one such company.  It used to be a biotech and has come back out of administration with a now focus on gold exploration.  It's first foray into the gold sector was it's purchase of an 80% interest in the Rebecca Gold Project located 150km east of Kalgoorlie in Western Australia.  It appears however that the company is really starting to gain interest following it's announcement in July and presentation last week regarding the option it has to acquire Aspire Minerals Pty Ltd, a company with tenements within Cote d Ivoire.  Apollo Consolidated has sprouted off in the recent announcement that not only are the guys that helped get Gryphon Minerals (GRY) and Ampella Mining (AMX) get off the ground are involved but the project does have some 'nearology' to Perseus Mining (PRU).  These are some big names and very successful explorers in the West African gold game.

Today's share price action is strong with the shares currently up $0.002 to $0.017 with good volume.  The sell side is reasonably thin however with over 484 million shares on issue I do have reservations about how many of those will come on to the market.  I also need to take a closer look at the terms of the option (to buy Aspire Minerals Pty Ltd) but one thing is for sure, and that is there's quite a lot of interest in this one.

Focus Minerals Research Report

• Eagle Research (Keith Goode) has issued a research report on Focus Minerals (FML) with a speculative buy recommendation
• Report dated 16/09/2010
• Target: $0.10
• FML last trade: $0.056 (17/09/2010)
• Research report link

ABM Resources Research Report

• BGF Equities has issued a research report on ABM Resources (ABU) with a buy recommendation
• Report dated 16/09/2010
• Target: $0.07 
• ABU last trade: $0.041 (17/09/2010)
• Research report link

Resource Generation Broker Research Report

• Shaw Stockbroking has issued a research report on Resource Generation (RES) with a buy recommendation
• Report dated 15/09/2010
• 12 month price target: $1.60
• RES last trade: $0.69 (16/09/2010)
• Research report link

Molopo Energy Broker Report

A good source of mine has indicated that a major broker will commence coverage on Molopo Energy (MPO) with a target/valuation price significantly higher than the current market price soon.  The company hasn't been covered by large brokers in the past and quite often broker reports do have an impact on the share price.

Orion Metals flies on rock chips

Orion Metals (ORM) surged 72% to $0.215 today after announcing results of rock chip samples taken at it's Killi Killi Hills project.  Nearly half of the samples showed presence of heavy rare earth elements whilst some of the samples also showed anomalous levels of gold.  Considering the market cap of this company is still very small there could be a lot more share price appreciation in this one.

Small Cap Snippets

I'm amazed about how much interest there still is in Northern Uranium (NTU).  The fully paid shares have now gone ex-rights and the rights are trading under the code NTURB.  For those that follow the stock don't forget to watch closely for any arbitrage trading opportunities between the rights and heads.  Also interesting to note is the forever changing share registry.  Not long after Areva confirmed it had exited it's position so to did Mineral Resources (MIN).  Since then we've also had Conglin Yue (from my research he seems to be a private individual investor with many other holdings) show his hand after accumulating a 10.92% holding.

This morning I tweeted about Batavia Mining (BTV) and that it would be one to watch today considering it's form yesterday.  Definitely a leaky ship.  The company went into trading halt this morning before trading commenced and it will announce exploration results soon.  It's neighbour, Western Desert Resources (WDR) announced drill results from it's Roper Bar Iron Ore Project yesterday with little fanfare.

Finally, Avanco Resources (AVB) had another case of 'flashing' or fake bids earlier this morning.  The games in this one have been prominent the last few days.  'Flashing' involves showing fake buy or sell orders to incite other traders into placing orders and therefore triggering trading.  The stock had numerous large buy orders in pre-open this morning which were cancelled before market opened.

OZL won't be passive with Sandfire Resources

For those that have a copy of the Australian Financial Review (AFR) from yesterday there was a nice little artice on page 18 regarding the intentions of OZ Minerals (OZL) and their stake in Sandfire Resources (SFR).  The article details how the OZ Minerals chief executive says that the company will not be a passive shareholder in any of the companies that it invests in (including Sandfire Resources).  He goes on to say that OZ Minerals will not be an investment house investing a bit here and a bit there because investors can do this themselves.  This suggests that any company that OZL invests in could be a takeover target as it will simply not just 'sit' on an investment.

Unfortunately I cannot provide a URL link to the article because AFR does not provide the full story unless you are a subscriber.

Orion Metals (ORM) now next to Northern Uranium (NTU)...

Orion Metals (ORM) has staged a massive 76% increase in it's share price to $0.15 after announcing today that it has acquired the Killi Killi Hills rare earth project in Western Australian close by to Northern Uranium (NTU) tenements.  The company picked up the tenements on the cheap by paying only $55,000 (cash and scrip) and a possible future maximum royalty of $100,000 to Mount Resources Pty Ltd.  I tweeted about the announcement a little after 3pm and luckily took a small position at $0.11 at the time.

Reading the forums online there has been a lot of chatter about the stock and it's potential upside for a number of reasons.  These reasons include:

• Small market cap of only $8 million undiluted (Northern Uranium's is approximately $40 million)
• Lack of shares on issue (approximately 55 million) which will make it hard to stifle the share price
• Rock chip samples recently taken with results due in the next week.  Anticipation of these results will help the share price.
• 'Nearology' to Northern Uranium.  Traders and investors will be wanting to ride the next share price burst after the performance of NTU shares.

The company also has other rare earth tenements in Queensland plus a copper-gold project near CuDeco Limited (CDU).  Tomorrow will be an interesting day, hold on to your hats ladies and gentleman.

As an aside and interesting to note, Areva has taken it's chance to exit the share registry of Northern Uranium.  Areva filed a 'ceasing to be substantial shareholder' notice to the ASX today.

ASX enquires Chrysalis Resources (CYS) about drop in share price

I recently posted about the sudden drop in the share price of Chrysalis Resources (CYS) before the stock was placed in trading halt and a subsequent announcement was released to the ASX advising that their drilling at Doolgunna West had found no results of significance.  I commented on how the share price drop seemed fishy, I wasnt the only one.

In a 'Pure Speculation' article by Robin Bromby yesterday he posed similar questions and asked "Has the ASX noticed?".  The answer is yes!

Today we see that Chrysalis Resources has responded to an ASX query.  The query raised by the ASX goes somewhere along the lines of:  Your shares have dropped from $0.26 to $0.20 just before a trading halt, we want to know when you knew of the information regarding the drilling results versus how long it took before the news made it to market.  It makes interesting reading.

It does go to show that price and volume indicators still go along way in preempting news.

CYS shares last traded at $0.145, down $0.02 at 12:34PM AEST.

Research Note on Dragon Mining (DRA) - Patersons

• Patersons have issued a research note on Dragon Mining (DRA) with a 12 month rating of SPECULATIVE BUY.
• Report dated 07/09/2010
• Target price $0.22
• DRA last traded $0.12 (07/09/2010 12:52pm AEST)
• Research report link

Cougar Energy Updated Research Note (Patersons)

• Patersons have issued an updated research note on Cougar Energy (CXY) with a 12 month rating of HOLD. 
• Report dated 02/09/2010
• Target price $0.08 
• CXY last traded 0.031 (03/09/2010)
• Research report link

Shares in Cougar Energy were suspended way back on 20/07/2010 after the Queensland Department of Environment and Resource Management (DERM) ordered the closure of the Kingaroy plant due to concerns of the quality of underground water being affected.  Underground water samples taken by DERM have come up clear however the department seems to be intent on making life difficult for the company after rejecting it's environmental submissions since.  Cougar Energy is now suffering funding issues and with the share price now at $0.031 (after recommencing trading on 02/09/2010) any raising won't be at a great price.  Very dire.

High Risk, High Potential return in real estate shell

For those that are interested in a possible high risk investment in real estate from the ground up may like to take a look at Olea Australis (OLE).  The company used to sell olive oils however has disposed of all assets relating to this and are evaluating new opportunities for the company with a highly likely bias towards commercial real estate.

The company has just over $1.5 million in cash on hand and a market capitilisation of approximately $2 million so we're looking at an extremely high risk, potential high return sit-and-be-patient-type investment.  Things are slow going at the moment which is evidenced by the fact the company has been looking for alternatives for over a year now (although they were close with one business proposal which eventually fell over).  In recent times the company has announced the appointment of Tony Pitt, an experienced person involved in numerous other initiatives for mergers, company wind ups etc to maximise share holder returns.
You need to also take into mind that when an asset is found there is going to have to be a capital raising too. 

As always, trading/investing in shell companies is high risk and I would only ever invest money in such companies that you can afford to lose.  Shares in Olea Australis last traded at $0.003 yesterday.

Chrysalis Resources - Writing on the Wall?

I posted about Chrysalis Resources (CYS) when the company still remained in trading halt on Wednesday (01/09/2010) and briefly mentioned that I was wondering if the pending drilling results were to be negative considering the sudden drop in share price the day it went into trading halt.  Take a look at the trading data below:

Date              Open    High     Low    Close   Volume


02-09-2010 $0.140 $0.160 $0.140 $0.140 1,733,132

25-08-2010 $0.230 $0.230 $0.200 $0.210 686,500

24-08-2010 $0.265 $0.270 $0.260 $0.260 44,230

23-08-2010 $0.270 $0.270 $0.260 $0.265 130,502

20-08-2010 $0.280 $0.290 $0.255 $0.260 215,007

19-08-2010 $0.295 $0.295 $0.280 $0.280 132,000

You can see that the stock was slowly drifting down in the lead up to 25-08-2010 which seems nothing out of the ordinary.  Suddenly, on 25-08-2010 (late afternoon trading halt) the stock dropped $0.05 on volume of 686,500 units raising my suspicions.

Whilst it is hard to react to daily share price movement if you are not sitting at the screen all day it does go to show how important having a stop loss in place can be.  Anyway, on 02-09-2010 the company announced that "the assay results of our drilling at the 5 target areas have returned no results of significance. At this stage the Company has no explanation why the assays have not returned any anomalism."  Back to the drawing board.  The shares were punished and closed at $0.14.

At least the shares have slightly rebounded to $0.15 today.


Neighbour Sanfire Resources (SFR) remains it it's own trading halt pending a resource upgrade announcement.  I think that this news has been factored into the share price already and the upgrade has been expected so I dont think there will be too much movement in the share price unless it is a blockbuster upgrade.  I did read somewhere lately that if OZ Minerals were to make a move on Sandfire Resources that it would have to be sooner rather than later because the way that Sandfire Resources is upgrading resources the share price is only going to appreciate and make it more expensive to acquire.

Canyon Resources up after West Africa gold acquisitions

Gold in West Africa seems to be one of the favourable and fashionable areas on the market at the moment and there seems to be quite a rush of juniors acquiring projects in countries such as Burkina Faso, Senegal and Ghana.

Canyon Resources (CAY) is the next cab off the rank to also acquire projects.  The company has only been listed over a few months and raised $3.5 million through it's prospectus to explore it's gold project in Cue, Western Australia and to also investigate potential investments in West Africa.

Today the company announced a binding agreement to acquire Askia Sarl Pty Ltd and the two gold projects it holds (Taparko North and Tao Projects in north eastern Burkina Faso).  Canyon Resources has decided to conserve cash and purchase the project via issuing shares to Askia Sarl Pty Ltd leaving the company plenty of cash to explore.

CAY shares are up $0.07 to $0.36 today after the news.  CAY has very little shares on issue (just over 27 million) which means there are very few tradeable or 'free floating', this is evidenced by the many gaps in market depth on the sell side and make it pretty tricky (and risky) to try enter and exit a position.

Moment of Truth for Chrysalis Resources

Chrysalis Resources (CYS) still remains in suspension and has done so since 26/08/2010 pending release of an announcement of drilling results on it's Doolgunna West tenements.

There has been so much excitement surrounding the Doolgunna area since the success of Sandfire Resources (SFR) that I think the results from Chrysalis Resources will be widely anticipated.  The companies tenements are about 20km away from Sandfire Resources Degrussa project so it could provide an indication if the belt extends from Degrussa and by how much.

Keeping an eye out for this announcement will definitely be worthwhile and help determine a little if it is all just hot air...

For those holding CYS my only concern is the lack of share price appreciation in the lead up to the trading halt.  Usually, if the news is good, there is a nice spike in share price and volume before any annoucements.  In fact with this case the share price dropped on increased volume which makes me wonder.

Toro Energy: interest from Asian suitors

The Australian Financial Review had a nice write-up in yesterday's paper regarding Toro Energy (TOE).  The article discussed how there was many Asian companies interested in becoming joint venture partners for the Wiluna uranium project in Western Australia however Toro Energy was happy to progress with necessary approvals solo for now.

Also discussed was the fact that other companies from around the world were keen to sign offtake agreements.  Toro Energy is hoping to be in production come 2013 and it is handy that it's major shareholder OZ Minerals (OZL) is still sitting on a lot of cash itself.

TOE shares last traded at $0.099 after being on continuous slide in the last year but bouncing from $0.064 in June 2010.

CuDeco bounces

CuDeco Limited (CDU) has bounced and seems set to finish on it's high for the day.  At 3:30pm AEST the shares are up $0.545 (32%) to $2.25.  The company share price has been bruised and battered and fallen from over $5 in a bit over a week especially since announcing the Rocklands Resource update on 18/08/2010.  In what was a disorganised attempt at an announcement and to arrest the share price slide CuDeco made clarifications, further clarifications and a press release too.

Finally, poor shareholders that have lost a lot lately have had some losses erased with the rebound in shares today after a letter from Sinosteel (partners in the project) to CuDeco showing continual support for the project was released to the ASX.

Other updates: AVB, NTU

Northern Uranium (NTU) has bounced back after being hit from it's announcement to place shares with Jiangsu Eastern China Non-Ferrous Metals Investment Holding Co to raise over $15million for a 51% holding in NTU.  I'm surprised with such a strong rebound in the shares and especially the volume being traded.  From reading chat on internet stock forums it appears many retail shareholders are going to vote against this and possibly egg-on the FIRB to reject the investment leading to a Lynas Corporation-style combeback.  A 9 million crossing of shares at $0.12 has also set tongues wagging with interest as to who the identity of the buyer may be.  Whatever the reasons the interest in rare earths companies is definitely back (if only for now).

Avanco Resources (AVB) made a nice little announcement today advising the market that Vale (iron ore behemoth) has taken an option to acquire the Trindade North Property from Avanco.  This will enable the company to earn royalties on any "in-situ JORC compliant iron ore resources in the measured and indicated categories" whilst focussing on it's copper projects.

Change in power at India Equities Fund?

I've talked about India Equities Fund a couple of times already because I always have an interest in shell companies and what may eventuate.  Anyway, this one seems to be hotting up quicker than I anticipated.  I mentioned how GW Holdings Pty Ltd popped up on the register as substantial holder.  Only five days later and with it's powers as a substantial share holder the company has called for a general meeting to overthrow the existing directors and replace them with James Chirnside, Alexander Feher and Gabriel Radzyminski.  It clearly shows that GW Holdings Pty Ltd is not going to be a passive shareholder and has plans for the shell...

I've done a quick search on these persons and whilst it didnt prove too fruitful you could generally see that they are of an investment funds-style background.

After a quiet week of trading in INE shares it is also interesting to note the jump in volume today with the shares up $0.005 to $0.062.

BHP Billiton takeover of Potash Corp sparks interest in all things potash, phosphate and fertilisers

BHP Billiton (BHP) has dived over 3.5% today after it announced that it had made a $US130 per share bid for Canadian listed Potash Corp.  Media reports have already speculated that it is likely that BHP will increase it's bid for the company.

One thing is for sure and that is other smaller players in fertiliser and phosphate and potash (ingredients in fertilisers) sectors have awoken.  For those interested in these sectors some of the plays include Incitec Pivot (IPL), a fertiliser supplier, potash companies such as Orecobre (ORE), Reward Minerals (RWD), Elemental Minerals (ELM), South Boulder Mines (STB) and phosphate companies such as Minemakers (MAK), and Union Resources (UCL).

Finally, other companies like Rum Jungle (RUM) are taking the opportunity to spruik their company by announcing responses to the takeover of Potash Corp for PR purposes.

Avanco Resources announces review of Serra Verde Copper Project

Avanco Resources (AVB) is another company that I have been following the last couple of weeks.  I posted about the stock approximately two weeks ago when the share price was at $0.019 and it has sinced hit $0.024 before settling at $0.02.

Today the company announced that better sampling results for copper/gold have been returned from its Serra Verde Copper Project and that is was planning a drilling programme.  The share price closed up $0.002 to $0.021 on turnover of just above 9.5 million shares.

I would anticipate the share price to settle for the next week now however it is encouraging that also towards the end of the announcement that it stated "The Company has received significant interest from groups seeking to jointly explore its projects including the Trindade North Property which is prospective for high grade Carajas style iron ore. The options available to Avanco are now being shortlisted and adjudicated. Negotiations are at an advanced stage and strong news flow on these and further Carajas Transactions is expected soon."

Statements such as this are only made when directors of companies are pretty confident.  Expect a bit of a kick in the share price in the next month or so should the directors be able to extract some good value from their projects for shareholders.

New substantial holder in India Equities Fund

I recently created a post on India Equities Fund (INE) on 08/08/2010 regarding the fact that the company appears undervalued considering the cash it will be holding after a capital return to shareholders and the value of the listed ASX shell.

Only 5 days later a new substantial holder noticed was lodged on 13/08/2010 with GW Holdings Pty Ltd declaring an interest of 22,752,981 shares (18.8%) purchased on 10/08 and 11/08.  I am interested to see what the intentions are of this company.  Unfortunately google searches proved unsuccessful so I couldnt join any dots together and work out what kind of investments this company has undertaken in the past to gauge whether they have a track record of using shell companies to effectively 'vend in' or backdoor list other companies.  Watch this space.

For those with experience in company options it is interesting to note that the bid/ask spread on INE is 0.053/0.058 whilst on the options it is 0.05/0.064 so possibilities of arbitrage could occur (liquidity allowing).  The INEO options have an exercise price of zero (0) however expire at the end of August, in other words, don't forget to allow for postage time for your exercise form to get to the share registry.

Sell on fact: Northern Uranium

I blogged about Northern Uranium (NTU) late last week after trading volumes suggested that something was up.  Today the company came out of trading halt and announced that it has signed a letter of intent with Jiangsu Eastern China Non-Ferrous Metals Investment Holding Co., Ltd, an affiliate of East China Exploration and Development Bureau (“ECE”).  The deal will result in ECE emerging with a 51% stake to raise approximately $15.7million at $0.145 per share.

The market hasn't reacted all that well which I would believe is a combination of the dilution of existing shareholders, the stake is a controlling one at 51% and that short term traders that bought stock in the lead up to the news are now exiting their positions.  I am interested to see what will be the response (if any) from uranium French giant and large shareholder Areva.

There is a bit of discussion on internet forums as to whether the FIRB will approve the investment especially considering how tight the supply is on Rare Earths and the fact that an investment recently in Lynas Corporation (LYC) was knocked back not too long ago.

Value in India Equities Fund shell company

I've always taken an interest in companies that are more or less an asx listed shell awaiting a further direction.  The majority of the time these companies eventuate because the company has recently gone into administration and possibly a deed of company arrangement has been executed with the company to back door list a new resources project or a complete a change in focus.  Other times a company has been underperforming and so the company is sold off leaving a shell with a bit of cash to buy into some hot new project.  I love this scenario because there is a few catalysts for share price appreciation and these include speculation as to what the new focus will be followed by an announcement that determines what new project or company that is acquired.  If the project is a good one there's a high chance that the share price will continue to rally too.

So what is a shell worth?  I would usually say about $3 to $4 million.  The reason for this is because the costs involved in listing a company on the ASX dont come cheaply.  I think that India Equities Fund (INE) is an interesting one.  The company recently sold down it's portfolio of Indian shares in order to find some value and complete a capital return to shareholders.  I would recommend taking a look at the announcement made to the ASX on 30/07/2010 by the company that details this information.  In summary the company has just over $80 million in cash, will be paying out 90% of that leaving about $8 million.  To wind the company down will cost another $2 - $3 million leaving the value of the company at about $5 - $6 million.  The last traded price at $0.047 gives the company a market cap of $6 million.  If management play their cards right and use the shell effectively we could potentially see a $0.07 - $0.08 share price.

Hudson Resources: Well under asset backing

One thing I do like to find in the market is stocks that can be clearly valued but for some unknown reason they aren't reflecting their true value.  You could almost call it an arbitrage opportunity.  Many of these opportunities come up in the property trust sector and India Equities Fund (INE) is a recent example whereby the net asset backing was above the current share price.  In order for India Equities Fund to get the share price to converge with the asset backing they decided to sell down the portfolio and complete a capital return.  I will talk about this company more soon as I believe there is a more compelling story in Hudson Reseources (HRS).

Hudson Resources has about 106 million shares on issue and the stock closed at $0.21 today giving it a market capitilisation of about $22 million.  When you complete a sum of all parts, that is, all of it's investments it is substantially above the market capitilisation.  Hudson Resouces has main investments of:

• 55,600,000 shares in Australian Bauxite (ABZ) @ $0.50 = $27,800,000
• 31,800,000 shares in Tiaro Coal (TCM) @ $0.45 = $14,310,000
• Cash, property, potential royalties etc.

The share holdings by themself equate to $42,110,000!  Whilst anomalies do in fact exist in trusts and investment companies this one seems quite compelling.  If anything, if you are a fan of Australian Bauxite then Hudson Resources is a great vehicle to get exposure or leverage to Australian Bauxite which has had strong share price gains lately.  One concern I do have about Hudson Resources is the lack of liquidity in it's trading.

Northern Uranium in Trading Halt

I was seriously considering taking a position in Northern Uranium today.  The stock piqued my interest after trading volumes spiked (along with share price) yesterday which was backed up again this morning.  I commenced my research.

The basis of my research was to determine if there was any exploration results due or maybe simply renewed interest in the stock because of it's rare earth projects which is a sector that can be hot and have renewed bursts (Lynas Corporation LYC has been strong in the last month).

One of the first things I do like to check is the market capitilisation, number of shares on issue and cash on hand.  Market capitilisation gives me a good idea of what the company is valued at already considering I like to target low value companies with lots of potential upside.  Number of shares will give me an idea of how many shares could potentially flood the market, stifle the share price and thus prevent any upside.  Finally, cash on hand is a good way of seeing if the company has enough cash to keep exploring and won't have to raise cash soon (and thus dilute my share holding).  Northern Uranium ticks most of the boxes - small market capitilisation of $11 million (undiluted), about 100 million shares on issue which is okay but slightly pushing it and $2.5 million in cash, enough for now.  The next step?  The industry that it lies in.  Uranium and Rare Earths.  I always like to go for companies in a sector that is favourable now.  At example at the moment would be companies that surround Sandfire Resources (SFR) Doolgunna region such as Sipa Resources (SRI), Thundelarra Exploration (THX), and Resource & Investment (RNI).  Rare Earths would fit into one of those favourable sectors.  The other thing I did notice was Areva was on the register.  It is always a plus having a big boy such as Areva around because they don't take an interest in little tidlers like NTU without a reason.

However before my research was complete and whilst writing up this post the stock went into pre-open followed by a trading halt.  Talk about disclosure!  There was definitely a leak on this one.  The announcement due to be released on or before Monday is in relation to "a potential corporate transaction".  Hard to know what to make of this.  The company has completed soil sampling at it's rare earth projects recently so I intially thought maybe we may have some further information on that but the mention of corporate transaction blows that idea!

Nexus Energy responds to ASX speeding ticket

Nexus Energy (NXS) shares have been setting a blistering trading pace this morning with the stock gapping up on opening at $0.38 (+$0.075) on heavy turnover.  This prompted an ASX query upon which the company referred to an article in The Australian quoting Shell as a suitor in possible takeover bid.

The article mentions that several large shareholders in Nexus Energy have been "sounded out" for a takeover by Shell.  Nexus Energy responded saying that they were not in negotiations with any parties.

Best to put this one on the watchlist, wait for the commotion to die down and then consider taking a cheaper entry.  The shares have been strong lately and are coming off a $0.195 rolling year low in May.

Avanco Resources: Good trading signs

Avanco Resources (AVB) came up on my radar this morning.  At 11:10am there has already been over 7 million shares change hands with the price firming $0.002 to $0.019.  Volumes such as this haven't been seen for about 6 months.

The company mentioned in it's Quarterly Activities Report on 30/08/2010 that assay results from drilling at it's copper project at Rio Verde are pending so news could be around the corner.

A brief mention in 'Pure Speculation' may have also assisted the stock.

A break past $0.02 and the stock may really start to fire up.

Paladin Energy snaps up Uranium junior in NGM Resources

Paladin Energy (PDN) announces takeover of NGM Resources (NGM) on 21/07/2010.

Paladin Energy had participated in a couple of share placements in NGM Resources in the past so this was a move that has been on the cards for a while.  The off market scrip takeover values NGM Reources at $27 million and the consideration under the Offer will comprise one fully paid ordinary Paladin share for every 23.9 fully paid ordinary NGM shares that Paladin does not already own (equivalent of $0.15 per share at closing price on 20/07/2010).
NGM Resources owns three uranium concessions in the highly prospective area of the Tim Mersoi Uranium Basin in Niger, West Africa. Niger has a history of being a high uranium producer and is now the world’s 4th largest. Areva is a French listed company and has been operating in Niger for over 40 years and has definitely had a stranglehold and good relationship with the government. The Niger government is wishing to encourage further uranium mining to assist the economy resulting in many more concessions being granted and global interest by uranium companies. Back to Areva, after signing an agreement with the Niger government the company intends to spend up to US $1.4 billion on developing its Imouren deposit. In order to give perspective, this Imouren deposit is only second to the size of Australia’s Olympic Dam and NGM Resources concessions lie just slightly south.

Another related company is Artemis Resources (ASX: ARV) who are currently focussing on gold projects in Western Australia, their Molybdenum project adjacent to Spinifex Ridge but also have two partly owned tenements in the Tim Mersoi Uranium Basin. The tenements referred to as ‘Tag 2’ and ‘Tag 4’ lie between the major Chinese National Nuclear Corporation deposit and a Rio Tinto (ASX: RIO) deposit.  I believe that Artemis Resources is a company that warrants further investigation for potential investment considering the takeover that has occurred for NGM Resources and the interest in this particular area.

For more information regarding the Tim Mersoi Uranium Basin and the companies operating in the region (including those in this article) I highly recommend the following link:

http://www.stratamodel.com/tim_mersoi.htm

I would also recommend looking at the exploration permit map for Niger link on the above website which gives a great indication of the locations of tenements. Please note that the NGM Resources tenements are shown under the company name ‘Indo Energy’, its wholly owned subsidiary.

Lunch time lull example: Burleson Energy

I've noticed it a few times before whereby an announcement is made early in the day, the stock moves and hits an intraday high before cooling off again over lunch time before then strengthening again in the afternoon. 

Burleson Energy (BUR) is one example of this phenomenon I noticed today.  The company announced that "AKG, operator of our projects in Texas, has completed in-house volumetric resource calculations for the Heintschel gas condensate field, and has confirmed a potentially sizeable gas condensate accumulation." Don't ask me too much about all the figures in the announcement but you can tell that it has been well recevied by the market considering the share price has rocketed 40%.

So let's take a look at the finer details of the share price movement.  The announcement was made at 10:11am this morning.  By looking at the course of sales at just over an hour later the stock had hit an intraday high of $0.088 (up $0.028 from $0.06) at 11:17am.  The share price then started to trickle down and by 12:29pm the stock was back to $0.077.  This is the key point, the lunch time lull!  I've seen this time and time again where everyone goes to lunch, the buying pressure eases and it makes an excellent buying opportunity.  This time period is also characterised by the lack of trades.

Now at 2:42pm the stock is back up to $0.084 so you can see that as a nice litte bounce that could have been profited from.  I would recommend observing this taking place on small cap stocks that have made price sensitive announcements to see for yourself.

Investing in takeover targets when out of favour

Isn't it funny how a resource rich area or particular metal/commodity can go in and out of favour?  Sometime ago coal seam gas was the hot energy source.  It was the sector that everyone thought that consolidation and market activity was inevitable.... then nothing.  It simply dropped off the radar.  Royal Dutch Shell and PetroChina made a takeover bid for Arrow Energy (AOE) a week ago and suddenly it is all on again with Bow Energy (BOW) and Eastern Star Gas (ESG) making good share price gains since.  The bid for Arrow Energy was made with the share price languising at $3.48, a price probably not seen since about July last year.  Take a look at the Arrow Energy chart below:

For me when a takeover target share price is depressed it is one of the best times to consider taking a position.  I say this because this is the time that a takeover bid is most likely to be launched.  If a takeover bid is to succeed it obviously needs to a premium to the current market price.  Why make a bid for a company when the price is trading at $4.50 and you have to add a premium when you can make a bid when it is trading at $3.50 and then by the time you add a premium it possibly can still be under $4.50???  Whilst Eastern Star Gas has the last week been riding the coat tails of Arrow Energy you can still see the way this strategy could have worked as shown in the graph below:

Eastern Star Gas was trading at almost a one year low and has bounced from $0.65 to $0.85, a healthy gain of 30%!  It has been speculated that Eastern Star Gas would be taken over by Santos Limited for sometime now.

Strike Energy Research Note

• Hartleys has released a research note on Strike Energy (STX)
• Report dated 10/03/2010
• 6 month price target: $0.50
• STX last trade: $0.25 (11/03/2010)
• Research report link

CuDeco Limited up after confirming talks with Chinese parties

CuDeco Limited (CDU) surged today after it made the announcement to the ASX that it was in 'discussion with a number of different entities in relation to different aspects of the Rocklands project'.
I like the point that it goes out of it's way to state 'number of different entities'.

The company was forced to show it's hand and meet continuous disclosure rules after it was reported in the 'China Daily' that Xiangguang Copper was looking to take a stake in CDU.

The stock closed up $0.54 to $4.70 on volume of 1.4million shares.

AtCor Medical Holdings Research Report

• Taylor Collison have issued a research report on AtCor Medical Holdings (ACG) rating it as a speculative buy.
• Report dated 19/02/2010
• 12 month price target: $0.43
• ACG last trade: $0.155 (26/02/2010)
• Research report link

Industrea Limited Research Report

• MadisonWilliams and Company have issued a research report on Industrea Limited (IDL) with a buy recommendation
• Report dated 19/02/2010
• 12 month price target: $0.54
• IDL last trade: $0.375 (23/02/2010)
• Research report link

Liquefied Natural Gas Limited Broker Report

• Southern Cross Equities has recommended Liquefied Natural Gas Limited (LNG) as a speculative buy
• Report dated 18/02/2010
• 12 month price target: $1.58
• LNG last trade: $0.69 (19/02/2010)
• Research reports link

Focus Minerals Buy Recommendation

• Hartleys has issued a buy recommendation on Focus Minerals (FML)
• Report dated 17/02/2010
• 12 month price target: $0.086
• FML last trade: $0.063 (17/02/2010)
• Research reports link

Brockman Resources Valuation Report

• Arrowhead Business and Investment Decisions have released a Due Diligence and Valuation Report on Brockman Resources 
• Report dated 11/02/2010
• Fair share valuation bracket: $5.04 - $25.21
• BRM last traded $2.98 (15/02/2010)
• Research report link

ASX 200 down slightly

The ASX 200 closed down 16 points today in what was light volumes and rather boring trade.  The US market on Friday night didn't provide much of a lead and the considering that Asian markets and the US market are closed tonight I don't expect much better trading conditions tomorrow.  Results season is in full swing with Bluescope Steel (BSL), West Australian News (WAN) and Crane Group (CRG) all disappointing today.

Algorithmic Trading on the ASX

I often read on stock forums traders and investors complaining about automated trading, trading robots or 'bots' manipulating the share price of a company that they are following. I also see questions such as "Why would someone buy only 10 shares? It hardly seems worthwhile" raised.

The technical term for the practice of computers trading shares automatically is ‘Algorithmic Trading’. It involves a set criteria being established and then deploying a computer to carry out trading abiding by the criteria to meet a goal such as buying or selling a certain amount of shares within a price range. One of the key advantages of algorithmic trading is it allows a party wishing to buy or sell a large volume of shares to slowly trade small parcels of shares every few minutes (or seconds) without significantly affecting the share price.

Last July the ASX undertook a review of this type of trading and has released the findings on 08/02/2010 in the report ‘Algorithmic Trading and Market Access Arrangements’. The report can be heavy going at times and full of jargon but does make interesting reading.

If I observe algorithmic trading there are some aspects that I like to take a close look at. Is the trading robot a net buyer or seller? If it is a buyer than there could be a new investor coming on to the share registry which is positive. I would keep an eye out for any new substantial shareholder notices or changes in substantial holders to identify who the party is (such as a competitor that may launch a takeover etc.). I would also monitor for how long the trading lasts.

Finally, one other thing that I use to assess trading opportunities is the ‘number of trades’ (not volume) executed on a stock. If the number of trades is increasing each day I can see that interest in that particular stock is increasing and an opportunity may be presenting itself. Should there be algorithmic trading on a stock than the number of trades is amplified substantially. I.e. there are a lot of trades but they are all tiny, the dollar value small and thus the ‘number of trades’ value is not meaningful. In this case I would progress with tracking the overall volume traded per day on the stock that I am following.

Metals X takes stake in Jabiru Metals

Time               Price      Volume         Value        Condition
02:46:46 PM 0.340 136,738,240 46,491,001.60 XTOS

The above reported trade started tongues wagging yesterday and pushed Jabiru Metals (JML) to a high of $0.425 before it closed at $0.40 for the day.  At 3:50pm it was announced that Metals X (MLX) had taken a 19.99% stake in the company.  In the announcement it was quoted that "Metals X believes JML is a quality emerging base metal miner with excellent longer term growth prospects. The JML assets fit well with the diversified portfolio of assets and investments already held by Metals X."

It is rumoured that the other 26 million shares of the 136 million were picked up by a Hong Kong investor.  JML is at least one to put on the watchlist - for now.  Anybody that takes a 19.99% position in a company is either attempting to take a blocking stake should a takeover eventuate or setting up for launching one themselves (a company cannot have a stake greater than 20% without lauching a full takeover).  It's probably just what JML needed - it will at least put a bit of a floor in the share price and arrest the share price slide recently considering commodity prices have been weak this month.

Placing Orders and Market Integrity

Have you ever placed an order and wondered why it was mysteriously cancelled or rejected by your broker? It can be a source of frustration for traders especially when they plan to buy a stock, the order does not execute and then the stock price takes off with the trader scratching his head at the lost opportunity. This article hopes to clarify the valid reasons for these rejected orders and also to suggest ways that traders can possibly avoid the scenarios explained.


Each market participant (or broker) has a responsibility to the ASX to ensure they assist in maintaining fair and orderly markets. In doing so, online brokers will have a system of filters or vetting rules that will refer orders to a Designated Trading Representative (DTR) should an order fail a filter. A DTR that is trained in this area will have the order show up on their screen and ultimately decide if the order is acceptable and sent it to market or reject if it is unacceptable. Traders may have noticed that sometimes their order may not hit the market depth right away or that it is showing up as a ‘referred order’ online – this delay is probably the case of the order failing a filter and it being forwarded to the DTR who is in the process of reviewing it. Traders may find this irritating if they wish for their order to be executed immediately on a quick moving stock.

So what are some of the filters and what are they designed to do? Online brokers can have up to hundreds, most of which are setup to maintain a fair market but some also to protect their clients. I will now proceed to list some of the reasons filters are established:

*Unmarketable parcel – The ASX specifies that an investor must buy at least a $500 minimum parcel of shares should he/she not already hold shares in that company. This filter is setup to ensure that buy trades with a consideration of less than $500 are not executed. It must also be noted that brokers must not allow a client to enter a trade knowing that it could possibly result in the client having a holding of less than $500 worth of shares. For example, if the client has a $1000 holding and wishes to sell $700 worth of shares.

*Traded too much of a particular company on that day – I’m unsure if there are filters to prevent this from occurring however there are situations when a DTR must monitor this type of situation. It obviously does not affect companies that are highly illiquid and may have a few small trades a day, however, if a company trades for example $200,000 worth of shares and of that one trader trades $100,000 worth and over numerous trades than it is something that the DTR and compliance department may have to discuss and monitor.

*Data entry error – There are occasions where we all make a ‘typo’, suffer from ‘fat fingers’ or simply put the decimal point in the wrong place. For example, a trader may wish to place an order to buy stock XYZ at $0.30 but instead enters $3.00 which is clearly an error. These orders are easily picked up by the filters and rejected by the DTR.

*Padding/Stacking the market – This occurs when a client enters numerous orders on the same stock on the same side (either buy or sell side) of the market. For example a client may place orders to buy stock XYZ at $0.40, $0.41, $0.42 and $0.43. All of these show as separate orders in the market depth and give a false sense of there being numerous different buyers for that particular stock. It is for this reason that many brokers will have a limit of 3 orders per client per stock on the same side of the market.

*Trading with yourself (user crossing) – This one seems a bit unusual but the filters do sometimes prevent this from happening. An example of when it may occur is when a trader has an existing order in the market to buy or sell shares which they may have forgotten about and then enter an order on the opposite side that would match their existing order (thus resulting in the trader trading with themself). Also, at the end of the financial year traders may attempt to trade with themselves to crystallise a tax loss especially if the market for that stock is illiquid and they cannot trade with another trader in that stock. At the end of the day, a trade cannot be executed if there is no change in beneficial ownership of the shares.

*Overlapping by too much – Your order may be rejected if it is overlapping the opposite bid/ask by too greater margin. For example, if the bid of a stock is at $0.40 and you place an order to sell your stock at $0.30. Overlapping the market can be a tricky game and a useful tactic when a trader is attempting to get price priority during a pre-open period (whether this be before the market has opened or whilst an announcement is about to be released). Rather than attempting to get at the very top of the queue with your bid/ask during the pre-open phase it is probably more wise to place your order at the same price as that of somebody already at the top of the queue. The reason for this is because your broker will be happy to place the order for you if another broker has already set a precedent rather than take on the risk of being the first broker to approve such an order.

*Too far from market – Orders which have no chance of trading as their bid or ask is too far from the last traded price can be rejected. Those orders which the DTR deem as okay and places may still be purged from the market by the ASX overnight. An example includes submitting a bid at $0.03 when the stock is trading at $0.20.

*Moving stock too much – One trade cannot move a stock price by a too greater margin. Brokers will usually have filters that refer any order that will move the stock price by over 10%. An example may be if a stock last traded at $0.60 and you place an ‘at market’ buy order which will execute at $0.73. There is a legitimate way to get around this and that is to place a ‘limit order’ at say $0.64 and slowly increase your bid every so often until you meet the seller at $0.73. Brokers will look more favourably upon this as it is giving the market time to respond to the change in conditions.

*Artificial closing price/Marking close – The last traded price at the end of the day is the price that is quoted in the newspapers or will be the price that the change will be calculated on the next day. For this reason sometimes traders (holding the stock) will try and make the close quite a bit higher then what the stock really has been trading at on average on that day. Marking the close is more critical at the end of the month or quarter as it will be when fund managers, company directors or top shareholders are reporting share prices for those stocks they are holding. The higher the stock price than the better the performance of their investments they can report.

*Wiping out the market – On a stock that has a thin market depth one order cannot wipe out many price steps in one hit. For example, if a stock last traded at $0.42 and a trader wishes to execute an order to buy 50,000 shares at $0.50 with the following market depth:

ASK

5,000 @ $0.43

17,000 @ $0.445

20,000 @ $0.45

3,000 @ $0.48

40,000 @ $0.50

This is a type of order that would be cancelled as the trader would be wiping out numerous price steps at $0.43, $0.445, $0.45, $0.48 and pushing the price up to $0.50 (the final 5,000 units of the order would trade at $0.50)

*Duplicate order – Sometimes a trader will receive a message that states ‘You have placed a similar order within the last few minutes, do you still wish to place this order?’ This message is attempting to ensure that an order isn’t duplicated by a trader in error. It is useful if the trader’s internet connection is failing during placing the order and he/she thinks the order did not go to market (when in fact it did) and thus attempts to place another one.

Samson Oil & Gas Surges

The market opened reasonably strong this morning on the back of reports overnight that the Euro countries were considering bailing out Greece from its sovereign debt problems.  Despite this and better than expected profit results by Commonwealth Bank (CBA) and BHP Billiton (BHP) the market closed only 0.2% higher losing most of it's early gains and showing that market sentiment is still poor.

Samson Oil & Gas (SSN) proved to be the star performer today with the shares closing up 87.5% or 0.014c higher to 0.03 on massive volume of 509 million shares.  The company announced "Oil and gas shows are also being recorded as expected, with gas shows typically 1,400 units over a background of 450 units. Oil shows are continuous with a typical description being “abundant brown spotty to even oil stain with a fast, strong milky white cut”. Not unusually oil has been noted from time to time on the shale shakers." in relation to it's drilling on Gene #1-22H well.

Iron Ore Holdings Research Note

• Foster Stockbroking have released a research note on Iron Ore Holdings discussing the maiden resource announcement made to the ASX on 02/02/2010.
• Research note dated 02/02/2010.
• Rating: Buy
• Price target: $3.50
• IOH last trade: $2.13
• Research report link

Royal Resources Research Note

• Patersons have issued a research note on Royal Resources (ROY) rating it as a speculative buy.
• Report dated 29/01/2010
• No target price given
• ROY last traded 0.175 (05/02/2010)
• Research report link