I’m digging

6:40pm  Thursday  24 February 2011

It is extremely difficult to make a call on the broad market due to the multifarious influences such as global commodity inflation, the price of oil and the tension in Libya.  Cursorily, broad problems exist such as disruption in oil supplies, displacement of OFWs working in Libya, political re-alignment and saber rattling among allies of the troubled countries and possibly long debates in the United Nations General Assembly and Security Council.

My friend used to say that in his household, he makes the decision on the major issues like who should the Philippines have strong diplomatic relations with, global warming and climate change, and whether the Euro should be abandoned by EU member states.  His wife is the one who decides on the minor issues like the monthly household budget, where the kids will go to school, what brand of car they should buy.  I guess they have a notion of what matters the most.

There is very little we can do about what is going on in the world, but we can get to have a look at a few minor details.  One minor item which I have in mind is ORE since I sense that there are a number of people losing money on this stock.  For your benefit these are some highlights of of the notes of one analysts note:

ORE owns 94% of Citinickel which is the sole owner of the mining claims of the Pulot and Toronto mines located in Barangay San Isidro, Bato Bato, Narra, Palawan, 100km south of Puerto Princesa City.  Both mines contain 1.83% to 1.85% nickel at a cut-off grade of 1.2%, which is one of the best explored nickel grade in the Philippines today.

• ORE’s stockpile as of Feb. 12, 2011 stood at 142,000 cubic meters or 156,000 Wet Metric Tons of ore with grade of 1.8% nickel or better per ton.
• Several mountains of ore (stockpile) are on  two stockyards, at a maximum distance of  2 km from the mine port and 6 km from the vast expanse of the open mine pit, 400 meters above sea level .  High grade (saprolite) nickel ore can be extracted on shallow soil.  Company officials say that overburden is 2 meters deep and saprolite protrudes at 6 meters deep.
• ORE’s first shipment has been delayed thrice since last year up to early 2011. They hope to ship two boatloads or 110k WMT to 165k WMT, at best within the month of March.  Subsequently, they plan monthly shipments until Sept. of at least 110k WMT per shipment.
• Tonnage (mining output) for the year and shipment will be 750,000 WMT on robust selling price of  $83/WMT based on a   grade of  2.1% which is the indicative weighted grade for the 700 ha. Toronto mine per Mines and Geoscience   Bureau (MGB) records shown by ORE officials.
• Operating margin is 80% on the abovementioned selling price as ORE’s all-in mining cost is $15/ton.  We estimate ORE net profits assuming selling prices at  1.8% nickel grade and 2.1% grade of  $63/ton and $80/ton to be PHP1.1bn and PHP1.6bn for PE of  3.5x-2.5x, respectively.
• Risks that we see are more rains and flooding of the mine site and a port under repair, which ORE claims can accommodate two barges at a time.  The port is 200 meters long, 3.5 meters deep and faces the Sulu Sea.

I reiterate that I do not suggest this stock to the faint of heart, and I am not saying that the price will not slide further because I think it can.  This is purely for the information of those interested.

In spite of a good number of stocks showing very attractive valuations, the markets are likely to slip further.  It is no longer a matter of value but rather a cloud of fear that people are looking at.  I have no idea when the market will turn except that net foreign selling in our market cannot go much further.  That, however, is no guarantee that there will be local buying to lift the market.  If you are going to stay in the market, you better be prepared to sit on losses for a while.  In my case, I’ve been through cases like this before, so I am used to the shelling and explosions already.  In times of war, you just have to keep your head down; but it is also in time of war that the wily get really rich.

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