The Speculator
PORTFOLIO POINT: A spooked market sells down miners - many with no operations in Australia - and our Coalworks investment droops even as it signs a winning farm-out with Japan.
Many sharemarket punters appeared to be running around like headless chooks this week as they panicked out of the resources market in confusion over proposed tax changes.
On a normal day, one would have expected our investment in Coalworks Ltd (CWK) to hold firm or even advance on news that a farm-in deal worth $11 million had been signed with a Japanese giant to develop the company's 42 million tonne thermal coal resource in the Gunnedah Basin of NSW.
The deal was announced yesterday and Coalworks shares promptly fell from a day's high of 49¢ to a day's low of 41¢ on turnover of close to 770,000 shares. Luckily for readers of this column, we picked up the shares at 27.5¢ on March 9, so we're still well in front and I'll continue to hold them for the present.
A Coalworks subsidiary - Coalworks (Vickery South) Pty Ltd - signed the farm-in agreement with ICRA Vickery Pty Ltd (a subsidiary of ITOCHU Corporation of Japan, which has extensive experience in the development of coal mines and the global marketing and sale of coal).
Up to $11 million will be spent by the Japanese company at the Vickery South project, where drilling is now under way, to undertake a preliminary feasibility study and complete a bankable feasibility study for an open pit mine by mid-2011.
The 42 million tonne Vickery South Resource is only a modest part of the Coalworks portfolio, which includes Oaklands in southern NSW (with a JORC measured, indicated and inferred resource of 822 million tonnes of thermal coal) and Ferndale in NSW's Upper Hunter with a target resource of 250-300 million tonnes of coking/ thermal coal.
Other stricken stocks
Even Australian-listed companies with no mining activities in Australia were marked down on Tuesday. Kingsgate Resources (KCN), a gold miner focused entirely on Thailand and Laos, saw its shares yesterday fall from a day's high of $8.71 to $8.26 on turnover of 409,000, although there was no significant change in the world gold price.
Our prized prospector Robust Resources also wilted, with its shares dipping from a close last week of $2.10 to a day's low of $1.75 on a turnover of 814,000 shares - yet its entire enterprise is based on Indonesia's Romang Island, 500 kilometres north-west of Darwin.
Today, Robust at one stage was marked down further to a day's low of $1.65 even though there is no way I can see that the 40% Resources Super Profits Tax (RSPT) can be extended to Indonesian resources.
While major income earning resource companies such as BHP-Billiton and Rio Tinto will see their profits clipped from Australian operations, the proposed measures won't be introduced until July 1, 2012.
A letter landed on my desk from a client of Adelaide-based tax lawyers McCullough Robertson, who see some merit in parts of the new tax proposals.
From July 1 next year, Australian prospectors and mine developers yet to earn a profit will get a resource exploration rebate at the company tax rate for exploration costs. This will enable companies in a tax loss situation to receive a cash rebate, rather than the present system where upfront deductions can create unusable tax losses for start-up companies and junior explorers.
Since the new profits tax regime will replace state royalties on production, new projects yet to turn a profit should benefit from reduced royalty obligations.
