Global Mining Investing $69.95, 2 Volume e-Book Set. Buy here.
Author, Andrew Sheldon

Global Mining Investing is a reference eBook to teach investors how to think and act as investors with a underlying theme of managing risk. The book touches on a huge amount of content which heavily relies on knowledge that can only be obtained through experience...The text was engaging, as I knew the valuable outcome was to be a better thinker and investor.

While some books (such as Coulson’s An Insider’s Guide to the Mining Sector) focus on one particular commodity this book (Global Mining Investing) attempts (and does well) to cover all types of mining and commodities.

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Thursday, September 12, 2013

Open Letter to the Australian Future Fund

Dear Mr David Gonski AC (Chair)
cc: Hon Peter Costello AC

13th September 2013

I would like to criticise your investment philosophy. I appreciate that the organisation has some legislative 'rationale' for investing in bonds and the like, but I want to suggest that your organisation has a wonderful opportunity to enrichen Australians. As a mining analyst, I watch as world class resource assets being development by small Australian mining companies are being taken over by offshore interests. Even poor African states are doing better than us. Let me cite some examples to you before I explain the reasons why.
1. Union Resources held an offshore phosphate resource in Namibia with a NPV of $220mil. It was sold for $US50mil, the first tranche (45%) was bought from MAK.ASX for $25mil, the second from UCL.ASX in a takeover for $33mil. A slight premium because it was after the feasibility study was released, and also because it held 35% stake in the world's largest undeveloped zinc-lead deposit in 'hostile' Iran - worth billions. They bought just before the recent election in Iran. The 'predator' in this case was Merwaid Mining, a London-based enterprise backed by an Oman state enterprise, funded by gas money. I'd say they got a bargain. Union Resources was of course between a rock and a hard place because it had no alternative funding.
2. Acacia Coal is capitalised at $A11mil, and it has a 60Mil tonne coal resource in Qld, and $5mil in cash, so enterprise value about $6mil. This company will be forced to farm-out its project. It will be 'bankable' by Feb 2014, but a Chinese/Indian company will get most of the gain. I might mention that there is little coal in Asia; no coking coal, but we give ours away. Haven't you ever wondered why Asian 'tigers' are buying  advanced projects rather than exploring for these resources themselves. What was Gillard's decision? A tax. Why don't we just appreciate our our assets? Why do we treat the mineral sector with such disdain given that for more than 'half a century' we have ridden on its back.
3. Gryphon Minerals (GRY.ASX) sits languishing in the market. I was able to buy at 12.5c but it since rallied to 25c. I should have sold all of my holdings but because of the tax system which discriminates against me, because I don't invest in our flawed super system, I sold only half to defer tax obligations. It is now 17c. This company has $55mil of cash & investments, plus 4Moz of gold worth billions. Its a takeover target given its resource base, strategic exploration leases, and its still exploring for more gold at a cost of $20/oz. I'd not be surprised to see it taken over for $100mil, or $20/oz. The Australian govt of course, in its infinite wisdom sold Australia's gold reserves at around $330/oz to invest in debased foreign bonds. The price of gold went to $1900/oz, and its just about to take off again, as it finds support at $1200/oz. I believe that decision was made by the 'best treasury in the world'.
4. Consider Global Minerals GBE.ASX, it has a large niobium resource in Africa. Another set of Chinese investors just bought in for 4.5c. I did I mention that the company has 4.5c in cash alone, and that this is a strategic asset for the Chinese because 80% of niobium comes from Argentina. Also it has a promising rare earths project.
5. Consider graphite resource developer Archer Resources AXE.ASX, its developing a high grade graphite resource in Sth Australia. It is destined to be given away to foreign investors, despite the fact that graphite will contribute to the emerging industries of battery technologies. Have you heard of carbon nanotubes. Might I suggest this is the future feedstock. Australia should be retaining these assets.

I'm surprised the mining industry is not complaining. Rather than get support from the government, they get taxed. Mining companies in Australia pay as much as 65% of their revenue in tax (according to the mining industry. This may have changed of late), but compare it to what other companies pay. 'Not their resources"? Fine, owned by the Australian public? Then complain and demand that we retain ownership of these public resources. Frankly, I think we are 'turning Japanese'...and 'I really think so'. This is the travesty of our governance, that our custodians are absolute idiots, and their idiocy demands explanation. Might I suggest the fact that its because of the lack of accountability of the Australian public. After all, the major parties in this last election, if you judge them by the candour of their election content, really think you Australian voters are pretty stupid. And to be sure some of you really are. But mostly the problem is you are just badly educated by them. When I compare my capacity to make money with the fact that Japanese investors are encouraged to buy Japanese bonds offering 1% per annum, I think Australians appear to be trending in the wrong direction. I think we are looking like 'dumbed down' Japanese investors every day, thanks to our government.

These companies are forced to go overseas because:
1. The govt gives tax subsidisation/incentives to super funds who don't invest in these companies because they are too small. Why? To encourage saving. But they don't give a thought to the quality of that saving. Japan has witnessed its savings rate fall from 40% in 1990 to 2% today. Might that have something to do with the low returns. Australia does better of course, with a savings rate of 9%. I would suggest it could be even higher if we valued our resources, and the resource companies which develop them.
2. The Australian govt is dumbing down the Australian investor by taking control of their money away, then forcing them to invest in low-yield, over-priced offshore enterprises, and forced to pay the associated fund manager commissions besides.
3. By the time they discover me and my book 'Global Mining Investing', they are so dumbed-down, that they don't believe its possible to make the 100% gain I made on UCL in 3 months, even though I told them about it, and wrote about it in the book. Our government is modelling 'scepticism' through the education system. The steep learning curve when people leave school leaves them jaded.

If the Australian govt truly wants to benefit Australians, maybe it ought to think about 'land-banking' world-class resources which foreigners are taking over. I'm suggesting that the Australian Future Fund should act as a 'support' for undervalued projects by investing in 'equity of last resort' so the private banks carry the debt. A mining project needs 30% equity to get a bank to finance the 70%. For small companies, the dilution is so severe that these companies give up the bulk of their value through takeover or 'farm-out'. These assets mentioned are world-class. There is no question they are viable projects. Its just a matter of timing. If the Australian Future Fund invested the nominal $20-40mil in each company, they would be taking a passive return of anywhere between 30-150%, depending on the state of the commodity market. Its really a 'no brainer'.

Based on the GRY example - current value of $20/oz (with takeover premium) versus the current gold price of $1400, with gold charts and QE suggesting gold going to $2400/oz, you people 'must be dreaming' investing in foreign bonds. What is more sensible than supporting Australian investors (shareholders), companies and employers make money, as well as making for the fund itself. Why are we giving money away to foreigners? Why are Oman intellectuals smarter than our dumb-nut bureaucrats controlling billions. The mind boggles. China, India and a raft of emerging markets will need resources, and we are giving away our expertise for a song.

Disclosure: I'm an investor in the companies above because dumb-nut investors are not.

Regards,
Andrew Sheldon
Mining Analyst, Investor, Critical Analyst
Twitter @AndrewSheldon1

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