I have inherited a considerable superannuation death benefit, and roughly 240k shares from my middle-aged father (may he rest in peace) in Rex Co. Minerals. or RXM as its traded on the ASX. The net value of the stocks were about 100k when purchased. @ 40 cents per. They have plummeted to 6 cents bar a few minor retracements. They are Roughly worth about 14k now. I have attributed this to appauling commodity price drops. However due to the steady decrease of commodity prices over the last few years, there has been a forecast of underproduction then demand in 2017. Also, the AUD is also forecast to depreciate considerably over the coming year. Making our exports much more enticing. This sounds like a match made in heaven. However I have doubts about whether or not management really is planning on going ahead with the SA Hillside Project (their flagship project atm), despite displayed interest from financiers such as Hyundai and other big names.Ive been told none of the CEOs have any money invested in the company and management has done next to nill in the last 2 years apart from a revision of the Environmental Protection Agenda for the mine and a revision of the original capitol investment into the mine down 50% due to commodity prices. All the mining leases have been granted by the government but I do believe there are a few wealthy station owners in the Ardrossan area that are battling the project. The S.A government is planning a $20 incentive injection to hopefully stimulate the SA mining industry. I'm at an absolute cross roads. Anyone care to share their thoughts?
To address some of the points you raised.
They may be slight underproduction per demand, but we are not going back to the peak until the next commodity cycle (30-40 years).
The AUD falls because we export less. If you believe in the AUD falling, you believe in falling commodity equities. Falling AUD is not bullish for your stock.
Receiving $20 mill from the SA Govt is a death knell. Successful companies don't put their hand out to the government.
It's just a shitty little mining stock. People invest in them because they are volatile. You buy a 10c stock on Wednesday, you sell it the following Tuesday at 12c. An easy 20%. You don't hold these stocks long term.
Sorry if this is a silly question but I was kind of thrown into this world after the unexpected passing. Why dont people hold these stocks long term? Why are they volitile?What if the project does go ahead? Please, I have researched and read forums any information is grately appreciated and not taken lightely, thankyou
and arnt we possible to bounce back with more exports due to the AUD falling at some point? With some of the most vast exporting capabilities in the world surely it cant go down forever. Lets say hypothetically I did hold onto the stock for 20 years. Assuming the company doesnt go into foreclosure.
The company was founded in 2007, I highly doubt it will be around for 20 years.
Don't worry about the $100k it was worth back in 2014. That is gone now. Right now you have $16k. The question is, how best to invest that $16k.
It's quite possible the company will seek to raise further capital from the stock market by issuing further stock. You will see in March 2014 ( http://www.rexminerals.com.au/-/rex/Lib/Docs/20140305-Rex-Placement-Announcement-FINAL.pdf ) they released stock at $0.40, so they could raise $12 million. This dilutes the equity base. If you look at the stock price since then, it never really went back above $0.40 except in August 2014. If they issue again it will set an even lower ceiling on the price.
Perhaps a financial adviser purchased these shares for your dad when they were issued in March 2014. Financial advisers get kick backs for doing this. They simply look after their self interest.
The commodity cycle is a long cycle. It last peaked in the late 1970s. The reason why it is so long is you have a lot of investment in mining capacity when prices are high. Once all the capacity comes online, you now have over-capacity and prices are once again low, it becomes a buyers market. When prices are high, buyers are panicking thinking their projects are going to fail due to not having enough resources, so there is panic buying, they literally horde the resources. When prices are low, buyers don't bother stockpiling because the stuff is so easy to get.
The AUD falling isn't going to spark a new commodity boom. It only makes Australian minerals possibly more competitive against those of other commodity exporting countries like Brazil or Canada. But in a commodity bust all commodity linked currencies will be falling. Also, keep in mind, your stock is in AUD. If the AUD falls 20% against the USD, your stock is now worth 20% less in USD terms. Perhaps you should invest in
As for why is the stock usually held short term, this is inherently a speculative mining stock.
The company floated in 2007, in the lead up to the boom. That basically tells you everything. I highly doubt these people are in it for the long term.
Yes, you can gather a board of credible looking guys and float a company in the lead up to a boom and get rich very easily. Shit gets delayed and by the time the boom has busted, they didn't need to do anything, now they can quietly wind up, when while it lasted the people at the top were making a nice paycheck out of it.
It's basically a case of profiting from the boom. You always see little companies opening up when there is a boom.
The only thing they had to bank on was that prices would stay high. Prices didn't stay high and the stock isn't going to perform well any more.
Now, maybe people can profit on a stock like this that range trades at a low value. Like I said, if a stock is range trading between 10c and 12c that's a 20% range and maybe some easy money. But if that is the trading strategy it's not a stock to hold long term.
As a person who invests in speculate stocks I was told a nice piece of advice that's helped me. You don't invest in a company you invest in management. If you think their managers aren't competent or dedicated then sell, you don't trust them so you shouldn't have money invested in their company.
Do your own research yada yada.