Australian Market Notes – 16 November 2006


MELBOURNE AUSTRALIA, 16 November 2006 – Taking a look at yesterday’s chart for BlueScope Steel (ASX: BSL) it doesn’t look as though too many investors were expecting fireworks. In fact, we can safely say that the stock didn’t move more than a few cents in a trading range until all hell broke loose.

Within around twenty minutes the share price had soared by around 8%. All as a result of better than expected earnings forecasts for the current year and the announcement that all business units had reported healthy profits.

They are probably apoplectic about the impending listing of steel contracts on the London Metal Exchange. No longer will they have to rely solely on actual contract pricing to lock in a rate. Now, thanks to the LME, they can fix an effective sell price in advance of signing physical delivery supply contracts.

But, at the moment they may not even be thinking about hedging the way they are racking up profits. BlueScope Steel let the good news out of the bag at their Annual General Meeting held in Sydney yesterday.

Chairman Graham Kraehe told investors that, “The first four months trading for BlueScope Steel has been encouraging, continuing the positive July performance. All business reporting segments have been profitable… Positive results continue from the turnaround in Butler North America. We have also had an excellent performance from all our steelmaking businesses.”

So what exactly was it that the market liked? Well, the current year profit was the main item. Analysts forecast by Reuters had estimated full year 2007 profits to come in at $545 million. Well, with the year only four months old, BlueScope have already returned profits of $250 million. Can the company scrape in roughly the same revenue again over twice as long a period until the end of the financial year?

Well, it’s looking good so far.

Perhaps not wanting to let the market get too carried away, Kraehe did add, “As you know, we have little visibility in prices post December, and therefore some caution should be exercised with regard to the full year.” If they could hedge forward using steel futures contracts they probably would have “visibility” past December.

Chief Executive Officer, Kirby Adams told the AGM, “We’ve had a good start to this financial year as a result of stronger global steel prices and improved demand in Australia and the United States, together with increased operating performance and improved cost efficiencies.”

All aboard the steel train! What about the uranium train? Yet another uranium initial public offering hit the ASX yesterday. This time it was the turn of Northern Uranium Ltd. The listing involved the issuing of 20 million shares at a price of 20 cents each. The opening price? 43.5 cents, before it closed the day at 40 cents.

We haven’t had the opportunity to look at Northern Uranium in any great depth. What are the odds that they haven’t actually discovered anything yet? Pretty short odds is our guess.

According to a report from AAP News, “Northern Uranium has acquired tenement and uranium rights to five projects, including its flagship asset, the massive 9,950 square km Gardiner-Tanami Super Project straddling the NT and WA border.”

Without wishing to sound too cynical, we ask ourselves, what makes the Gardiner-Tanami a “flagship” asset? Does it contain mineral samples indicating a higher probability of uranium? Or, is it a flagship because it’s er, big?

We think we may take another look at this one, even if it is just for entertainment value.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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