One sector in remarkably good shape
The clock is ticking down to the end of 2020 and for most, it can’t come quick enough. COVID-19 has made sure of that.
But if there is a sector with the least to complain about, it has to be the mining sector. Challenged as it has been on the supply side by health protocols around the pandemic, and demand hits from global lockdowns, the sector is ending 2020 in remarkably good shape.
That is doubly so for the Australian mining sector. China’s V-shaped economic recovery has kept iron ore prices at elevated levels as well as powering up the base metals complex.
Gold too has maintained elevated levels, with the average margin of more than $A1,100 an ounce as good as the industry could have expected, firing up investor interest in the developers and explorers in the process.
A roll call of commodity price increases from 2019 calendar averages tells the story. Iron ore up 30%, gold 36%, copper 13%, nickel 10% and silver up 50%. Zinc is about steady, leaving lead the laggard with a 10% fall.
Coal and lithium have taken a beating but are showing signs of recovery from the lower levels, particularly metallurgical coal.
So all in all, much more to cheer about than not, with the promise of increased global stimulus in 2021 a positive for “hard assets” as governments seek to fire up their economies in the wake of the worst of the pandemic passing.
While the global pandemic is clearly 2020’s dominating theme, the Australian mining sector has been pulling together some of its own in response to price signals, as well as in response to global thematics such as the EV and storage of renewable energy revolution.
The key “local” theme in 2020 – apart from price recovery across a broad sweep of commodities – has been a step up in the discovery rate. Numerous high-value discoveries have been major value-creating events for the companies involved.
De Grey’s Hemi gold discovery in the Pilbara, Chalice’s Julimar nickel-copper-PGE find on Perth’s doorstep, Legend’s nickel find in WA’s Fraser Range and Stavely’s copper-gold discovery in western Victoria are the prime examples.
Another big local theme has been the market getting behind gold developers and explorers in response to what is the best of times for the sector.
Stepped-up mine and near-mine exploration are growing the resource bases for many to the point where they can make the push towards getting into production to capture the fat margins on offer.
Given gold’s elevated price levels, they have been rewarded by the market. Examples include Bellevue, Red 5, Calidus, Kingston, Bardoc and Breaker.
Consolidation in the gold sector has stepped up in 2020, with the Northern Star and Saracen nil-premium merger leading the way. More is expected as cashed-up producers look to fill their mills by acquiring deposits within trucking distance held by juniors.
Across in the base metals space, leveraged exposure to technically savvy exploration programs and exposure to near-term production potential has been another theme, particularly for nickel and copper.
Both are considered future-facing metals in a decarbonising world, with future demand scenarios suggesting the need for more new projects to be brought forward.
Discovery too has been a major value-creating driver for returning-to-production nickel stock Mincor in 2020, as well as the Brazilian-focussed nickel explorer Centaurus.
As for lithium, the supply surplus is being soaked up by production cuts, with the EV and battery storage of renewable energy thematic intact and poised to start providing incentive pricing for a supply response within the next couple of years.
Opportunities and insights for resources investors
The above themes will get a good airing next Tuesday the 10th of November and Wednesday the 11th of November at Resources Rising Star’s “Triple-Event” Conference, so-called because it combines both webinar access and the ability to attend (Gold Coast and Perth).
In all, 38 junior and mid-tier mining companies will be presenting. There will also be scene-setting keynote speeches from well-known trend pickers Hedley Widdup from Lion Selection Group and veteran stockbroker Don Inglis from Canaccord Genuity.
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One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.