We warn China

Robin Bromby | June 24, 2009

Article from: The Australian

"WE warn Russia" was an apparently famous headline on an editorial some 100 or more years responding to some perceived military threat.

There is some uncertainty as to which newspaper issued this warning, some sources attributing it to what was then the Manchester Guardian. Quite possibly it’s apocryphal. Whatever - the story is used to remind we in the news trade that we are largely toothless tigers.

It is, therefore, in that spirit of editorial impotence that today’s The Dirt is delivered.

And it was provoked by two unconnected stock exchange announcements. One of those came from Oroya announcing that Brazilian metals giant Vale had withdrawn from the junior’s Roe Hills nickel project 85km east of Kambalda. The major’s nickel arm, Vale Inco, had identified several nickel targets to be followed up before the withdrawal decision was taken. Oroya doesn’t tell us whether Vale Inco’s withdrawal was due to a general belt-tightening by the Brazilians, or fading enthusiasm for the project.

However, it is pretty safe to assume that, had there been strong indications that there was a world class target there, Vale Inco would still be there.

No, it’s a timely reminder that exploration is not easy. The great majority of exploration programs turn into failures - and the multinationals are no more protected from this fact than the punter with $5000 (that started out at $20,000) in some penny dreadful.

The first piece of advice to any would-be investors is that shares can go down as well as up. Well, the first piece of advice to anyone putting money into exploration companies is to count for them all the major discoveries within Australia over the past decade. The answer: after naming Prominent Hill and zircon in the Eucla Basin, you start to struggle before you have used all the fingers of one hand.

You’d think that, with $50 million riding on it, someone would have been able to come up with the correct six numbers in last night’s Oz Lotto. Well, finding a major mineral deposit has better odds - but only slightly. Of course, there will be plenty of small discoveries - but that’s bit like investing $1000 on megapicks and winning third division.

The second announcement came out of Mount Magnet South regarding its Kirkalocka gold project. A Hong Kong based company, Tianda Group, can spend up to $1.5 million to earn a 51 per cent interest

Now, they may well find gold. But this thought occurs: there has been an enormous volume of money thrown by various Chinese entities at Australian exploration companies over the past few years. And, given the success rate mentioned earlier, don’t some or many of them stand to do their money here. Have the Chinese looked at the odds of finding something big in Australia?

Plenty of Australian investors have been sorely disappointed over the past 50 years - think Poseidon NL, think 1987, think all those drill holes that have come up with nothing - so are we about to see the Chinese learn the same lesson?

Yet they, and others are still coming. Three weeks ago, a South Korean delegation sat for a day in Perth listening to pitches by explorers seeking money, and we hear that a Malaysian group is in the West at present.

The writer implies no investment recommendation and this report contains material that is speculative in nature. Investors should seek professional investment advice.