The Lion Selection Clock

About the author:

Chris Brown
Author name:
By Chris Brown
Job title:
Senior Analyst
Date posted:
27 November 2014, 10:35 AM
Sectors Covered:
Junior (Emerging) Resources

The Lion Selection Group has been presenting the Investment Clock since the company was established in 1997. It's ticked through a few booms and a few busts. Booms can last a while, but importantly for 2014, so can busts - and the aftermath.

The 2012/13 commodity price crash was up there with the best. One analyst (Adam Hamilton, "GLD and gold's selloff", in Mining.com) noted that the fall of 22.8% in the second quarter of 2013 from the September 2012 value of US$1750/oz was "the worst quarter for gold in an astounding 93 years".

There's no doubt THAT's a crash. How long before we see recovery, or have we? It depends on your point of view - and the commodity or investment instrument you're following.

The Lion Selection Clock 

(click to expand)

Lion Selection Clock

Source: Lion Selection Group - Presentation September 2014

While it may take further time for commodity prices to firm, depending on supply/demand balance, some resource equities are discounted to value. Our expectation is that these discounts will evaporate ahead of price strength.

Recommendation

Producers with no (or low) levels of debt and in profitable production at current prices, and at a discount to value, are attractive investments:

Regis Resources

Regis Resources (ASX:RRL) weakened from +$5.80 down to $3.00 early in 2014 with the weakness in the gold price. Operational issues - since resolved - caused a further drop initially to +$2.20, and subsequently a further drop to $1.27 when the gold price headed south from US$1200/oz.

When it was +$5.80 it was a "market darling", and arguably overpriced. Stocks seldom (never?) recover "market darling" status, but the fall below $3.00 is arguably not justified, and the fall below $2.00 certainly isn't.

It remains a quality stock with good assets, strong management and a strong balance sheet. It's strengthened from $1.27 to $1.55 since the low early this month.

The Australian dollar gold price since the start of the year is about A$60/oz higher now at A$1380/oz than it was then. And the US dollar gold price is $1200 - pretty much the same as it was then, although it's been lower (US$1140) and higher (US$1382) in the meantime.

Morgans clients should login to view our target price for Regis Resources.

Three more companies catching our eye this week

Our latest Rocks and Stocks report looks at three ASX-listed industrial minerals companies - lithium, graphite and tungsten:

  • Valence Industries (VXL)
  • Orocobre Limited (ORE)
  • Carbine Tungsten (CNQ)

Morgans clients should login to view our analysis on these companies.

More information

View more detailed analysis on the Resources sector, or contact your nearest Morgans office for more information. 

Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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