The Rude Awakening
Wall Street, New York
Tuesday, December 20, 2005 ------------------------- - The results are in from the 2nd official Group Rude
Research Project and the ideas are certainly golden,
- An interesting company that deserves a special
mention and,
- Give the gift of knowledge, or at least some savvy
financial insight and a few Rude observations…
------------------------- Joel Bowman, emancipated from a flurry of reader mail,
reporting from Baltimore. It's great to know that our humble little publication is
not just dropping into the void of cyberspace. So, thank
you for your participation in this Group Rude Research
Project. Rantings, ravings and diabolical diatribes on all
things Rude related are always welcomed. Write to me any
time between 12:01 am and 11:59pm any day (I need my rest)
at: aussiejoel@the-rude-awakening.com And now, drum roll please, your findings… --- Advertisement --- A Deal Made Over Several Gin and Tonics This company has $1 billion in cash, never takes a risk
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By Eric J. Fry We inquired…You replied. Last week, we asked you, the Rude Awakening readers, to
identify gold mining companies that you believed would be
attractive takeover candidates. You responded with a flood
of emails. Specifically, we asked: "Please identify mid-sized gold companies that YOU believe
would be attractive acquisition targets for a larger gold
or resource company…The suggested stock must have a
market capitalization greater than $250 million. No small
caps, please. And obviously, no inside information, please.
We will examine the submissions that we receive over the
few days and will provide a sampling of the best ideas in
the December 20th issue of the Rude Awakening."
In total, the Rude readership identified 25 different gold
mining stocks, only four of which received multiple
nominations. Hence, no identifiable theme emerged from the
selections, except perhaps that Aussie readers responded
more enthusiastically than their North American
counterparts! Australia-based Oxiana Limited garnered the most
nominations. "Dear Joel, How about Oxiana Limited?" one reader asked.
"You probably know this one, being an Aussie yourself! It
is predominantly a gold/copper play. I await the outcome of
your survey with interest. Keep up the good work…" "I nominate Oxiana Limited as a takeover candidate,"
another reader declared. "The company has resources of 10
million ounces of gold, 4 million tonnes of copper and
1 million tonnes of zinc, and as their highly regarded CEO
said about their exploration success recently, 'everywhere
we go, there's more mineralization.'…[The company's]
four-year [production] target of 500,000 ounces of gold and
300,000 tonnes of base metals per annum makes this totally
unhedged, low cost company an attractive target." Oxiana also picked up an endorsement from Jake W. Gray, CEO
of Axiom Mining Limited and Vietnam Resources Corporation. "Check out Oxiana Limited, an Australian mining company
listed on the ASX with its principal assets in Laos," Mr.
Gray suggested. "The company has moved from having a market
cap of about $25 million four years ago to a current
capitalization in excess of $1.5 billion. Oxiana's success
is largely based on the world-class Sepon copper and gold
project in Laos." Another Australia-based gold company, Bendigo Mining,
picked up an enthusiastic endorsement from one of Joel's
countrymen. "Joel, I suggest you have a look an Australian stock,
Bendigo Mining Limited (ASX ticker: BDG), with the caveat
that this is probably a longer term takeover play, due to
the profile of the mine development currently underway (the
first gold pour is slated for mid-2006). "Bendigo Mining is a bit of a 'sleeper' that is now coming
to the attention of the market. A staged development of a
12-million ounce gold resource beneath the old Bendigo
goldfields is well advanced, with Stage 1 mine development
commissioning commencing in Q2 next year. Initial
production of 120,000 oz per annum will quickly ramp up to
200,000 oz per annum over three years, thence to 600,000 oz
per annum with the commissioning of Stage 2 by 2012. Recently, the company has completed a capital raising
(A$140 million), with more than enough cash in the tank
(and zero debt) to complete Stage 1 and advance to Stage 2
development. No forward-production hedging, and a rapidly
rising cash flow based on a low cash [cost of production]
make this a potential 5-10 bagger, once the market realizes
the development risk is zero, and that the historically
proven high-grade Bendigo resource extends to depth…Not
that this is too much of a leap of faith for the geological
cognoscenti, in so far as $100 million of exploratory work
and drilling has confirmed the case to a high degree of
confidence (…It is one of the more robust geological
models that I have seen as a geologist of thirty years
standing). "The company has made a series of comprehensive and
transparent project disclosures from which the business
value and risks are readily assessed…a standard to which
most of the gold industry players could usefully seek to
aspire. With a market cap approaching A$600 million, the
company's stock will probably double in price within 18
months, as the development and business concept is proved
(aside from any rise in gold price in the interim). Then
the big players will move in to acquire the business before
the ramp up to Stage 2 and 600,000 oz per annum occurs to
send the price through the roof. "…Lots of upside in the event of a long term bull market
in gold, aside from the potential for an acquisition
premium to emerge in the next 18 months." A little bit closer to home, Vancouver-based Northern
Orion, picked up multiple nominations from the Rude
readership, as did several other Canadian mining companies.
The list below features a sampling of these
recommendations. 
Lastly, one of the more unusual ideas that we received
would not qualify as a likely takeover play. Nor would it
be large enough to make the $250 million cutoff. But we'll
mention it just the same: "Lion Selection (LSG.AX) in Australia is a Development
Fund, which means it has no capital gains tax in
Australia," a reader explained. "It invests in what it sees
as the most prospective gold (and other) plays around the
world. It has some really promising plays in the
portfolio." In other words, Lion Development invests in the sorts of
companies that COULD become takeover targets. It acquires
stakes in both listed and unlisted shares of small- and
medium-sized mining and exploration companies. The
companies in its portfolio operate in Australia, Africa and
Southeast Asia. Since the market capitalization of Lion
Selection is only $150 million, the companies in its
portfolio would be even smaller still. Nevertheless, it has
managed to invest in companies that have attracted larger
buyers. Less than two weeks ago, IAMGold made a bid for
Gallery Gold, of which Lion Selection is the largest
shareholder. Since we know almost nothing about the rest of
Lion's portfolio, we cannot vouch for the stock. But we do
find the company's structure somewhat interesting. We hereby conclude the second Rude Awakening group research
project, and hope the results prove worthwhile for all. Thanks again to all those readers who contributed their
ideas. [Joel's Jotting: A few nuggets of golden ideas in there, no
doubt. While resources have proved profitable for a number
of investors during the recent bull market, few have been
able to keep pace with the Maniac Trader, Kevin Kerr. Kevin
has been playing both sides of the market and delivered
some very impressive results. Last week we had our monthly editors meeting and we were
glad to see Kevin able to make it down from his Connecticut
digs for the occasion. When it came to Kevin's turn to
speak, he handed out a folder containing some of the year's
results. "Wow," was the general response from the editors,
highly successful financial minds themselves. Kevin slammed
in 154% on cotton calls, 116% on sugar calls and 56% on
crude spreads… Looking down the positive side of his
ledger we see 80%, 89%, 135%…Even taking into account the
year's few losses, he was still up over 40%. If you are serious about extracting cash from this market,
let Kevin show you how to play both sides of it and bag
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