Major drilling TSE-MDI Message Board

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Gold/Mining/Energy : Major drilling TSE-MDI

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To: John Veltheer who wrote (27)	12/1/1997 6:41:00 PM
From: Michael Bidder	Read Replies (1) of 71

Supply Demand dictates declining earnings. John, It looks to me like buying generated buy management, or short covering . This will soon run out of gas. It always does. I predict the next support level to be around the $14 range.Look at the two yr chart: quote.yahoo.com Based on the decline of earnings that will naturally occur as junior explorers go into hibernation. Junior companies are laying off staff and conserving exploration funds for the next bull run of the market. Producers will be consuming hedge books and exploration will be curtailed to finance care and maintence of shut down operations. The majors are only an incremental fraction of the overall demand. Most of the drilling is done buy the juniors, financed by the stock market. The Juniors will want to wait till the next bull run when they can promote their stock as well as drill. Otherwise they will expend their cash with nothing to show for it. The supply demand curve for this service will dictate competitive pricing. As contracts expire they will be re-negotiated at lower levels. It will be a buyers market with plenty of surplus. This company did its aquisitions at the top of exploration drilling cycle. Managment used public money to buy private companies. While this can be good to consolidate a market, it can spell trouble if done at the top of a business cycle. Often in the enthuiasum to close the deal managment will offer to much. The target companies owner realising the cyclical nature of the business is pleased to sell. Price of gold and the end of the exploration cycle will drive the valuations of these assets down in real terms. Additionaly the assets become a liability when they need to be stored and maintained. Now that information is only a mouse-click away I think the true valuations of stocks will be more quickly realised. Funds that did the buying, stock crossing etc. is only market noise. It happens to all companies for different reasons. Sometimes it is window dressing, often it is a simple miscalculation. No one could have timed the drop in the price of gold. I am sure that the fund which bought high will not want to give more money away supporting a company if the earnings are in question.

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