article by tony locantro.. stocks named

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    For those interested, an article Tony sent to clients and others today. Reproduced here with his permission. It comes with all the usual disclaimers.

    DREAM SPECULATIVE PORTFOLIO

    Much to the intrigue of my fellow brokers, I have a running joke where the bottom of the market will be signalled by a punch thrown in our dealing room. I am prepared to accept a slap, although a repeat of Barry Hall on Brent Staker would probably involve a charge of GBH (not the drug).

    I was there at the top of the Nasdaq bubble pleading with my clients to take their money out and switch into real estate. Those were the days where I would come home covered in red wine after all the excitement over the latest dotcom mover. Lucky for me I had no fashion sense whatsoever and all my shirts were the two for $19.95 Target variety. The ties were also cheap and nasty and it would have cost more than they were worth to have them dry cleaned, so they found their way into the bin.

    At the top (just like the bottom) tempers rise as colleagues start to break ranks on deals, some might miss out on a round of “cheapies” or one sell order could open up a can of worms on the trust issue. Working in an open plan office you can hear conversations clearly, you can feel the frustration and despair as phones are slammed down in disgust by advisers who are fast approaching breaking point. During the last major slump in activity, which was in 2002, brokers left the industry to build boats, become farmers or better still drive taxis where, during the next phase, they became masters at spreading gossip.

    Being lucky enough to have pretty much seen it all (bar an 87 style crash), I have decided to plough through the negativity, fight emotions I believe we are born with (the rampant idiot gene) and continue to play the game with the view that the market is going to improve once that elusive punch or slap is thrown.

    HERE IS THE DREAM SPECULATIVE PORTFOLIO

    Ramelius Resources 68c
    ASX Code: RMS

    In June 2004, RMS traded as low as 6c and my clients were able to buy as many as they could afford. The story changed in May 2007 when (after issuing bonus 1 for 2 options to shareholders) they announced 48m @ 154 g/t. Once the dust finally settled, those clients who purchased RMS down to the June 2004 lows were rewarded with 50 x their investment.

    The gold hits have translated into a mine that could continue into the foreseeable future, but RMS was let down when they released an 83,000oz resource that was heavily cut and did not accurately represent the production outlook at Wattle Dam (WD). Further results from Wattle Dam have been impressive and, when you combine this with the Golden Orb discovery (this could link up with WD), I believe we are looking at an outstanding growth opportunity in high-grade gold production (not many share this space with RMS).

    During the lean times I got to know Joe Houldsworth quite well and in fact when he would come in our office to present (I was the only one in attendance) I would be offered a lift home. When I wanted to impress my new girlfriend or buy my Mother something nice as a gift, I would go out to AGR Matthey and select hand picked nuggets from the WD range.

    Joe has been criticised for using mild expletives in his boardroom radio interviews, but is one of the most passionate in the industry and I think those out there in Net land need to drop all their paranoia and suspicions and look at the growth profile.

    RMS’s future growth and share price appreciation could come from making prudent acquisitions, extensions to Wattle Dam and Golden Orb (plus virgin gold discoveries) and simply getting on with business.

    Integra Mining 19c
    ASX Code: IGR

    IGR’s share price weakness has dumbfounded many, but best to look at the facts and what the company offers. I have been a major supporter of IGR over the years. We were able to build a 25% stake from a placement at 6.5c and various other raisings. When the stock gathered momentum on the Salt Creek drilling results, it motored from the low teens to highs of 71c. During this rally, a number of my clients sold into the strength however, when things are looking good and confidence is high, emotions take over and to an extent the big green monster makes an appearance (greed) and it is very hard to get anyone to sell anything when the news flow cannot get any better.

    History aside, IGR has still reported one of the most stunning gold discoveries in WA, Salt Creek, purchased a plant and mining camp, raised $31m at 45c per share (now down to $15m) and has an 8km gold corridor begging to be drilled. Management of this company is first class when you look at what Chris Cairns has achieved and his decision not to rush into production has been vindicated.

    I have been on the other side of some major fund selling (organised buying lines) and, once this gathered momentum, the stock was on the slippery slope to new rolling lows. The selling pressure just snowballed, we were then bombarded by technical traders and panic merchants despite releasing a plethora of good news.

    I feel that the Salt Creek gold discovery is of strategic importance for someone in the gold industry and this sets IGR apart from the pack. The sector is looking for a market darling and already we have seen how well Avoca Resources (AVO) embraced that role running from 9c to highs of $2.91. Sure the market conditions are different now (they never stop changing), however investors are always seeking out the shining lights in the industry.

    Atlantic Gold 11c
    ASX Code: ATV

    When talking to clients/recommending ATV, I am drawn to the following, “ATV is from the same team that brought us Plutonic’. Although there might be some detractors out there, the management team of Ron Hawkes and Wally Bucknell were the ones instrumental in the stunning growth of one of Australia’s most remembered gold companies.

    Whenever I am in Sydney I try to catch up with Wally in the same old coffee shop at the same old time and discuss the world in general. ATV is working towards delivering production at the Touquoy Gold Project in Nova Scotia Canada. The project has been held up due to the environmental process, but approval was granted in February this year. Wally is normally softly spoken, but when he refers to Nova Scotia being just like WA in the 1980s it is worth listening to.

    I have read comments on the low-grade nature of the gold, but this argument is easily balanced by the beautiful metallurgical characteristics the deposit presents. The fact they are wanting to go into gold production also creates more negativity as you are then faced with, ‘But how are they going to fund it?”, ‘Wouldn’t they have to do a placement at a low price that will dilute the share price even further?”.

    There are plenty of reasons not to buy a stock, but if the prospect of growth and a much higher share price down the track cannot be seen through short-term funding issues that every serious company faces, then the majority out there are unlikely to evolve into serious speculators and that suits me and my client’s just fine.

    ATV is a clear case of playing the people and the asset and simply waiting for someone to realise its value. (A whole region when you consider what could occur in Nova Scotia).

    Diamonex Limited 19c
    ASX Code: DON

    Blood Diamond was one of the best movies I have seen in a long time (Charlie Wilson’s War and American Gangster were the others). After I had finished enjoying the movie and performance of DiCaprio in particular, my thought process moved to investment and how speculators would be turned off by such events in Africa. This again comes back to focussing on reasons not to buy stocks and become successful in the speculative arena.

    DON has had quite a bit thrown at it. During the recent market malaise we have had selling announcements from JP Morgan Asset Management and more recently Babcock and Brown. News of this sort does not help the share price.

    Construction of the Lerala diamond mine is Botswana is almost complete and first diamond sales are expected this month. On planet earth there are less than 20 diamond producers with 90% coming from four majors, RIO, BHP, Alrosa and Debeers (excluding Debswana). (Source DON presentation dated July 25 2008). 10% of diamond production comes from small-mid caps, with the top two having market caps of $1bn and $500m respectively, so there is plenty of room for a newcomer such as DON to enter the industry and hopefully stir up proceedings.

    DON’s market capitalisation is now down to $32m and this would hardly cover the cost and effort of building a brand spanking new operation in Botswana. Apart from production upside, DON also possesses a very exciting new project in Colorado USA as they look towards diversifying into other areas of production. (The USA project is at a very early stage and need further work to justify a full scale exploration effort).

    Now the market is in super negative about everything mode, we will hear that DON offers substantial production risk and questions such as, “What if the mine fails”, or “What if employees start stealing the diamonds”. If this is the case don’t buy it (or anything for that matter), but be careful driving your gas guzzler to work in peak hour traffic or even stepping outside and breathing.

    Panax Geothermal 18c
    ASX Code: PAX

    As a reader of airline reviews (have some trips coming up) I see PAX staring at me on a regular basis. For those who don’t know PAX is short for passengers. I also see PAX in articles about the Pitt/Jolie clan. Everywhere I go I see PAX. Similarly, I remember back in my days as a police officer, attending break and enters in Jubilee St Lewisham, writing up a stock before I was a broker and doing everything apart from buying shares. Jubilee ended up going from being a penny stock to over $23.00 on the back of a discovery that was flagged in a Sydney paper in 1994 when nickel was accidentally discovered by someone else on their turf.

    So what is the point you may ask? Well this time there will be no excuses. I have put this one together, like what I see and am prepared to back it with as much financial resources as I can muster.

    PAX are an emerging geothermal junior that have assembled a team of people I can only describe as being top shelf. Apart from having Dr Lambertus (Bertus) de Graaf at the helm (an example of an MD who thinks outside the conventional), PAX have also poached some highly credentialed types from the likes of Arrow Energy (AOE) and Santos (STO) and, when you look at how they present their quarterlies and general information, this is a company that puts their sub $20m to potential shame.

    One of the highlights for me was their recent visit to the US and Canada where the purpose of the trip was get the story out there and not to raise cash. Judging by some comments from PAX you sense that they could easily attain funding if required.

    Their project portfolio extends from Australia to India and Kyrgyzstan and I would expect PAX to be at the forefront of speculative fervour should geothermal indeed be the scene of a future bubble.

    Zambezi Resources 10c
    ASX Code: ZRL

    If there was a “perfect storm” to provide a buying opportunity, than ZRL is in the eye of it. The company’s share price was happily trading around 17c (albeit being belted around by some funds), when they announced a rights issue at 12.4c with a 1 for 3 option to keep 100% of their major project Kangaluwi (Copper-Gold) which ZRL believe could be world class and a “company maker”. Since the market now only believes in Santa and the Easter Bunny, this decision must be a total fabrication, so the stock was trashed down to 10c.

    Since 10c is below 12.4c, the rights issue must fail and the company is now toilet grade. What utter nonsense! There will come a time when company announcements are believed and the aim of investment will eventually be to BUY LOW and SELL HIGH.

    ZRL listed on the ASX at 45c, ran to highs of 58c but has since been trashed. From recent announcements and news items, management appear to be tip toeing through the tulips in order to hammer it when market conditions become more favourable and a new tax regime is implemented in Zambia. Worthwhile noting that ZRL also has a pseudo uranium division with a JV partner in RIO (the company). Looks like a very big structure, and we may see some activity into 2009 on this front.

    Maybe I am being fed the wrong style of mushrooms but I see some outrageous growth potential here.

    L&M Petroleum 12c
    ASX Code: LMP

    I love LMP because I love Port Adelaide and they have the same colours….NOT! When LMP presented to me pre-IPO I knew it was something special. It took a hammering from 20c down to 7c before a spike to 28c when the stock developed a profile but better late than never.

    What initially attracted me to LMP was the calibre of the board, and when your Chairman was one of the founders of Nuigini Mining (which became Lihir Gold LGL) and is involved in flying a Constellation across the country for Diggers and Dealers you know that (ripping off a line from Dave Grohl) there is plenty of funk in the trunk.

    LMP have a portfolio of traditional high risk/high reward oil and gas projects in New Zealand (or as the Yanks on some ads call it, Shebangabang), but what sparked the market’s interest was the coal seam potential of their leases. LMP are about to spud their first well this week, and will then be embarking on a campaign to unlock what could be some serious potential.

    LMP are now drifting back towards cash backing, which is ridiculous, but this is how the market is failing to discriminate between quality and road kill and always will at both extremes of market conditions.

    Orocobre 25C
    ASX Code: ORE

    ORE is one of the riskier stocks on the list as far as my reputation is concerned. The stock rallied very strongly from 16c to 50c but has since pulled back and was recently in the low 20’s. This is the type of stock where some readers will see the price at the top of this section, look at what ORE is trading at and think to themselves, “Thank goodness I didn’t buy that stock”. This is the paranoid nature of speculators where anyone that puts a view out there and is not right in the first week is wrong. What I am going to ask at the end of this is to print off the article or table, then come back to it in two years time and see how well/poorly my ideas have performed.

    I believe that lithium has a big future and the potential to eventually bubble along the lines of phosphate/potassium and any other exotic metal or commodity. There has been discussion on hybrid cars and how the current versions need improvement to develop mass appeal, and lithium could be the place to be.

    ORE are focussed on Argentina and have a management team with extensive experience in that country. Some may ask why not focus on Australia or Shebangabang but the salt lakes with the attractive mixtures of goodies only occur in certain areas and South America is one of them.

    No matter how poorly the market is treating every stock, out there somewhere on the mining pages is another MAK waiting to happen. (MAK went 13c to $2.95 being the leader of the phosphate brigade in Australia). ORE exhibited excellent running credentials but took the Jamaican to the next level and probably looked around too much at the opposition.

    Rubicon Resources 9c
    ASX Code: RBR

    Apart from having land surrounding IGR, RBR is a pure management play with a very attractive twist. Vale (previously CRVD and the worlds second largest mining company) is now RBR’s largest shareholder with their interest being the Warburton IOCG project where rock chips up to 5% Cu were encountered. RBR ran to 15c on the news but just like a well thrown boomerang, the share price came screaming back with interest. RBR was a spin out from the HRR stable, where Avoca Resources (AVO) was one of the stars as mentioned earlier in this article. RBR does not feel that dissimilar to how AVO did at the same price, but at the time I always thought of Avoca Beach rather than the formation of a serious mining company.

    Peter Eaton is one of the true market savvy MD’s out there and remains upbeat despite the poor market conditions for emerging gold companies.

    Notwithstanding the hard work ahead of them and lack of appreciation by anyone apart from the worlds second largest mining company, RBR at these prices is a blank canvas my clients are happy to back.

    Bass Metals 15c
    ASX Code: BSM

    BSM would have to be the best example of what can happen when your stock is in a down trend. The share price has fallen in near perfect formation from 56c down to recent lows of 12c despite the fact that BSM are a Tasmanian base metals producer who took out some prudent hedging. The decline appears to be beyond management’s comprehension also, as in announcements they have elected to underline key words that the market is clearly missing. If anything I would back this company for the management alone, as Mike Rosentreich is easily one of the most passionate MD’s out there and his presentations are always enjoyable.

    So here we have a PRODUCER capped around $16m that is generating $3.5m per qtr and is concurrently exploring for elephants with top shelf JV partners. We are now in a market where a bandwagon uranium stock with billions on issue can hold their market cap better because selling them down to near zero still leaves you with a decent wack of company value. (Post dilution).

    BSM have been providing clues in recent announcements that they wish to grow and who can blame them. What may be restrictive in the short-term is a low share price which may rule out straight out script bids but in this environment the timing might be justification in itself.

    Kentor Gold 11c
    ASX Code: KGL

    Up until a few days ago, KGL was one of the best performing speculative stocks on the market. That was until they released some very exciting geological information on their new Khantau IOCG project in Kazakhstan and those without vision decided to sell the stock off to ridiculous levels. It appears KGL may have bagged a Kazak elephant and outpaced a number of major mining companies. Simon Milroy the MD was previously involved with Pan Australia (PNA) and part of their ultimate development into a copper-gold producer. PNA was a junior that fought their way from lows of 4c to a share price at one stage of $1.25.

    Outside of Khantau, KGL has the Savoyardy gold project in Kyrgyzstan which is very handy, and interestingly has some geothermal exposure through their Kyrgyz JV’s with Panax (PAX).

    My client’s relationship with this stock has been limited, but with Khantau and the PAX connection around 12c-13c it is a company I am happy to recommend that should be punching higher than its weight class.

    Copper Strike 16.5c
    ASX Code: CSE

    When valuation reports of $1.00+ were being produced, CSE’s share price rocketed to highs of 85c. The share price is now not that far off its all-time low of 13c, yet CSE are in feasibility at the Einsaleigh copper project in QLD and this is due out by the end of August. In a market happy to discount everything, one redeeming factor is the flexibility of the project based on two copper deposits and three zinc-lead-silver deposits.

    It is just obscene when you have a company with around $7m in the bank, capped under $17m with a study is nearing completion on an actual resource. Based on the ludicrous value assigned to the company, CSE are a sitting duck for corporate activity.

    Just like the other companies covered in this article, CSE has committed and passionate management who are working hard to see the company succeed.

    WCP Resources 6.2c
    ASX Code: WCP

    Thought I would leave the “roughie” of the field till last. It’s a roughie in the sense that the share price is closer to zero than all the others, but also the leverage potential of the company’s asset portfolio.

    WCP’s major asset is a 26% holding in Panax Geothermal (PAX) and it could be argued that WCP is in fact a cheaper option to the PAX share price. WCP has also just announced an interest in a second phosphate project in QLD with immediate drill targets. It could be argued that WCP have missed the phosphate rush or have they?

    Management is also worth a closer look as historically there have been relationships with the Gutnick stable that are now in the Georgina Basin in QLD in the hunt for phosphate.

    No matter how bearish market conditions are, there are always stocks that are going to do something special and speculators will flock to these like seagulls to heavily salted chips.

    I view the interest in PAX as a reason to own WCP on its own as I believe PAX to be an emerging geothermal company with plenty of substance. In a directionless market looking for leadership it is difficult to buy the juniors, however in most cases if you don’t, you can miss out on the first 50-100% of upside which makes it all worthwhile.


    No doubt those who have been sellers of quality resource stocks in 2008 now feel vindicated in doing so, as prices have continued to fall. Being in the minority I have experienced significant pain when large funds are pulverising perfectly sound companies, simply to remove a losing position from their books.

    I have been rather protective of my stock selections in past articles, but in this environment I doubt there is going to be any roaring competition in these stocks despite what I believe to be outstanding fundamentals and longer-term opportunities

    Whilst watching TV a few weeks ago, a Libra commercial came on the screen with a young lady playing a beautiful cherry Les Paul guitar. It got me thinking. In order to justify buying a vintage version of one of those I have to keep working and evolving as an adviser and part-time writer. It has also always been my dream to take my partner to a Pearl Jam concert in a foreign country, so these desires keep me motivated in a market where I can see people throwing in the towel on a daily basis. Picking multi-baggers is the ultimate prize and I guess we are all motivated by it to some extent.

    I would love to print this article out and put in an envelope labelled “Not be to opened till August 19 2010”. Who knows what the results will be, but by backing the right people at the right price I have been successful thus far and see no reason for this to change. Anyway either way a track record will be established!

    Good luck to everyone with the research on these companies and chin up!


    Tony Locantro
 
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