Let the games begin – how to finish an investing marathon

Investing marathon Commonwealth Games let the games begin ASX free trade agreement
WEEKLY MARKET REPORT

There is something inspiring about seeing some of the best athletes in the world – or even the Commonwealth – performing so well when it really matters.

It is not just about being a winner; if an athlete records a personal best at a high pressure event such as the Commonwealth Games there is really no more that can be expected of them, no matter where they end up in the field.

It is a similar situation with share market investing, as long as you do the best you can with the information available to you at the time and make a habit of learning from your mistakes, you should be a good competitor, particularly if you follow the two big watchwords of diversification and asset allocation.

It must be said though that investing is more of a marathon then a sprint – you can be lagging at some parts of the race but perseverance is the absolute key to ensuring that you cross the finishing tape in reasonable shape.

Market hitting a weak spot

We are certainly going through a bit of a lag period on the Australian market at the moment, which is weakly bouncing off six month lows after an up and down day on Friday ended up basically flat.

This sort of market is a frustrating place to be because it seems so captive to offshore themes which might be as simple as Donald Trump’s Twitter feed or a bit of distant sabre rattling on trade or security.

Certainly the past week was a bit like that with the prospects for a trade war again encouraging market volatility as Chinese retaliation to Donald Trump’s metals tariffs came into closer focus.

Australia is not in a bad position for a US-China trade war

While the detail and depth of Chinese retaliation towards the US and the promise of perhaps more to come was undoubtedly bearish for markets, there is a silver lining for Australia is we play our cards right and stay out of the main skirmish.

China is Australia’s largest trading partner, we have a free trade agreement with the country and we are still part of the Trans-Pacific Partnership trade deal which the US pulled out of.

It is also interesting to note that we export many of the goods that the US supplies to China, making us a potential beneficiary should the trade war escalate beyond the current tit for tat announcements.

Beijing’s list of 128 US goods that will see tariffs of 15 to 25 percent imposed in retaliation for the Trump administration’s decision to impose similar tariffs on aluminum and steel from China includes some industries that Australia excels at.

Fruits and nuts

Australia is one of the major competitors for the US in exporting fruit and nuts into the Middle Kingdom.

Up to 40 per cent of Australia’s fruit exports already head to China and Hong Kong and our exports of nuts and particularly almonds are also booming, up by a factor of ten in the last five years alone.

Any losses that the US feels in this area could possibly be gains in both prices and volumes for Australian exporters.

Pass me the wine

Wine is another area in which Australia is highly regarded and is seen as a source of a pure and clean product.

Already Australian wine exports to China are booming, up 63 per cent to a total value of $848 million, more than double US exports.

Chile also has a free trade agreement with China and France is aggressively targeting China so we won’t have it all our own way but the US really could lose out on getting access to what promises to be one of the really large world wine markets and we could continue to cement our strong position.

Cash in a can

China has targeted scrap aluminum such as drink cans which is melted and recycled in Chinese furnaces, with the US facing a 25 per cent tariff.

Australia has been greatly increasing its export of scrap metal including aluminium to China and the country is now our number one destination for all waste.

Australia’s main waste export to China was waste metal ($602 million or 592,000 tonnes) which accounted for 31% of the value of all exported waste metals.

Coal and steel

Australia is well known for its exports of high quality iron ore and metallurgical coal, which is integral to steel production.

That puts us in a strong position to pick up the slack should China decide to reduce its imports of US coal in particular.

Overall trade position improving

Australia’s overall trade performance has been improving, with another large trade surplus recorded in February, which is the latest month available.

In seasonally adjusted terms, the February surplus was about $100 million better than expected at $825 million.

Australia has now recorded trade surpluses all the way back to the late 2016 so any trade improvement from here would start to really add to real GDP growth and potentially share prices.

Reserve still on hold and retail sales looking better

There were some more positive indications for Australia in the past week with retail sales starting off the year in better shape with department store sales luring shoppers through the door as some other incremental Australia’s struggling retailers are enjoying a solid start to the year with sales rising for the second successive month after a weak end to 2017.

Retail sales rose 0.6 per cent in February in seasonally adjusted terms, following a 0.2 per cent gain in January.

The Reserve Bank didn’t rock the boat with an expected “nothing to see here’’ announcement that official rates will stay at 1.5 per cent, which should keep retail sales and the property market ticking over, even if they are far from boom conditions.

Small caps on the move

Hydrocarbons are the predominant theme for this week as several companies have announced significant progress to their projects in the US, Europe and Africa.

Real Energy (ASX: RLE)

Real Energy is determined to supply the Australian east coast market from its Cooper Basin project location in Queensland.

The timing remains as soon as reasonably possible, with imminent drilling scheduled.

Real Energy has entrusted Tamarama 2 and Tamarama 3 to be drilled by Ensign, with an offtake deal with Santos already signed and delivered.

The small cap oil and gas explorer says the company is fully-funded for its next two development wells and expects to exercise its offtake deal with Santos later this year, subject to successful spuds.

In addition to Santos deal in waiting, Real Energy has already secured a gas sale deal with Weston Energy to sell its soon-to-be unearthed gas.

Strata-X Energy (ASX: SXA)

Gas resources are growing rather well for Strata-X Energy.

The gas explorer is being backed by proven resources bloodhound Ron Prefontaine who has previously done two deals with Arrow Energy and Bow Energy, offloading them to Shell and China National Petroleum for $3.5 billion and $550 million, with Strata-X now in-line for his next venture.

This week, Strata-X more than doubled prospective resources for its Serowe coal seam gas fairway in Botswana’s Kalahari Basin to 3.3 trillion cubic feet, representing a 240% improvement.

As it stands, Strata-X is looking at a potential high of 5.016 tcf although it’s still early days with the prolific Mr Prefontaine expecting the gas explorer to seek additional funding for its appraisal and development efforts in the coming months, given the mammoth project it has on its hands.

In 2015 there was an 8000-megawatt power generation shortfall which presented a US$1.6 billion (A$2.08 billion) sales-a-year opportunity for the CSG market, and Strata-X wants to fill the gap.

88 Energy (ASX: 88E)

There was some rather sombre news to hit 88 Energy this week as the company lost the Fath er of Fracking and a dear friend Paul Basinski — although its Alaskan 3.6-billion-barrel show must go on.

The remainder of 2018 promises to be pivotal for the 88E, with near-term activity related to the Icewine#2 flow test expected prior to mid-year, results from two 3D seismic acquisitions and one or more farm-out transactions targeted for the latter part of 2018.

According to 88E, its conventional interests are in line to be “farmed out” to additional joint-venture partners later this year.

The big kahuna for 88E is Icewine#2 which remains on schedule for April/May this year.

A successful reopening of Icewine#2 could help revive Alaska’s flagging oil fortunes, thereby kickstarting a sagging oil industry that’s plunged the state’s economy to its lowest funding level for decades.

AJ Lucas (ASX: AJL)

The US is not the only place for fracking.

AJ Lucas Group announced its 47.4%-owned shale gas exploration company Cuadrilla Resources has completed drilling of the United Kingdom’s first ever horizontal shale gas well at its Bowland project in Lancashire.

The achievement marks a major milestone for AJ Lucas and Cuadrilla and means Lancashire could be spearheading the UK to hydrocarbon self-sufficiency, at just the right time with Brexit on the horizon and gas imports from Russia looking ever-more politically charged.

The pair have been granted consent to drill up to four horizontal wells on the Preston New Road site, with news flow over the coming months likely to be rather intriguing indeed.

Paradigm Biopharma (ASX: PAR)

Quite a surprise for Aussie rules football fans was news of Paradigm Biopharma’s existing drug for the treatment for knee, hip and groin pain being used on 40-50 AFL players who have not responded to traditional therapies.

Paradigm’s CEO Paul Rennie revealed that seven AFL clubs have been actively using the company’s repurposed drug Pentosan Polysulfate Sodium (PPS), and indications are, more players are quite literally queuing up to take up the treatment given its runaway success.

Paradigm’s PPS drug reduced joint pain and improved knee function in 84.4% of patients as part of the company’s TGA-approved special access scheme.

Paradigm says that there are currently 180 people being treated under the TGA’s special access scheme and that results available so far show that pain scores on 45 patients were reduced on average by 50%.

Previously used to treat blood clots and painful bladder syndrome, its turns out there’s a far more lucrative application of Paradigm’s overlooked drug candidate.

Esports Mogul (ASX: ESH)

Esports Mogul is going from strength to strength as growing user numbers are now being monetised.

This week, the up-and-coming eSports company announced a 390% jump in users of its Mogul Arena platform and then spring-boarded into Latin America a day later with news of a partnership deal with Axeso5, an online video game publisher based in Latin America.

Esports Mogul’s the recent launch of its Asian tournament series has given the company added impetus to add commercial value to its branding masterstroke in launching several innovative features that have captured the imagination of its audience.

In addition to raw users, Esports Mogul reports that one of its newest features, Esports Elite, also continues to post strong growth figures as users “flock” to engage with the innovative model of interaction between the company, gamers and elite gaming teams who are quickly becoming role-models for gamers.

Northern Cobalt (ASX: N27)

Northern Cobalt has showered shareholders with multiple Easter eggs this week by announcing the imminent resource upgrade for its cobalt-laden Stanton deposit and extending the closing date for its share purchase plan by a week.

Not only that, but the explorer said it anticipates receiving assay results shortly from its final 10 diamond drill holes carried out late last year.

At its project site, Northern Cobalt is waiting for the wet season to subside, so it can kick-off its upcoming exploration campaign, with 37 new prospects pegged for drilling, as well as carrying out simultaneous airborne magnetic and radiometric surveys.

Stanton is the company’s most advanced polymetallic deposit, and the one most likely of making it past the post into production with an initial resource of 500,000 tonnes grading 0.17% cobalt, 0.09% nickel and 0.11% copper.

Tawana Resources (ASX: TAW)

Tawana Resources has announced plans to merge with its Bald Hill joint venture partner Singapore-listed Alliance Mineral Assets (SGX: 40F), with the combined entity possessing an anticipated market cap of A$446 million.

As part of the merger, Tawana has announced an underwritten A$20 million placement to fund ongoing commissioning of the Bald Hill mine as well as future exploration, feasibility and expansion project studies.

Via the combined entity, Alliance and Tawana plan on becoming a mid-tier lithium producer from Bald Hill with greater liquidity and financial capacity to progress exploration and growth initiatives.

Upcoming IPO

Expecting to list later this month is Corona Resources under the ASX code CNA.

The company is aiming to join a string of successful gold companies coming out of Australia in recent months following the yellow metals resurgence since 2014.

Corona Resources (ASX: CNA)

Corona’s cracker-jack veteran team that cut its teeth advancing several high-profile projects over the past three decades is now poised to take on its latest mission — to develop and bring into production the Spargos Reward project in Western Australia and advance the Queenstown gold and copper project in Tasmania.

Corona owns 65% of Spargos Reward, which will increase to 85% upon completion of a positive scoping study on a JORC resource, which is now underway.

Corona has already developed an initial resource for Spargos Reward of 177,000oz of gold at 3.1 g/t, although there is always room for improvement. It’s just an initial resource over a small fraction of the total strike length, which means Corona has its work cut out.

According to Corona’s executive chairman Michael Wright: “There’s more exploring to do, which is what the IPO funds are for.”

If all goes well, Corona wants to bring Spargos Reward into production within 18 months to two years, with an ore processing plant already lined up.

The Week Ahead

A broad sweep of economic indicators including consumer confidence, dwelling starts, housing finance and credit card purchases will be released in Australia in the coming week.

However, the highlight could well be a speech on Wednesday by the Reserve Bank Governor, Philip Lowe.

Offshore, some of the things to watch for include key measures on consumer and producer prices which will be released in both China and the US in the coming along with Chinese trade price data.

Perhaps the reality of those figures will prompt the US and China to talk rather than threaten for a change.

John is a highly experienced business journalist and formerly chief business writer for the Herald Sun. He has covered Federal politics in Canberra, was Los Angeles Bureau chief for News Limited and was also chief of staff for the Herald Sun. He has covered a wide range of small and large cap ASX stocks and has a special interest in mining, technology and biotech.