The Resources Story - Poor Returns and Little Excitement

John Robertson

Commodity prices are held responsible for the lack of interest in mining investments when two other factors of critical importance are little discussed. The industry’s success rate is appallingly low and getting worse. Since the last cyclical trough around 2002, the number of ASX-listed resources companies has more than doubled but the rate of mineral discovery of a little over 20 a year has not increased, with some evidence pointing to a decline. The second problem is well illustrated by Western Areas, regarded by many as an industry success after a market value rise from $10 million in June 2002 to $580 million at the end of June 2016. The impressively sounding rise does not take account of the $437 million raised along the way. Over a full cycle from trough to trough the return was equivalent to a 14-year bond investment with a 4.8% yield. Over the same period, the average Australian government 10 year bond yield was (coincidentally) 4.8%. With bond yield-like returns and a poor discovery track record, investors have little incentive to hurry into the sector.


John Robertson

John Robertson is Chief Investment Strategist for PortfolioDirect a provider of resource sector investment stock ratings and portfolio strategies for mining and oil and gas investors. He has worked as a policy economist, corporate business...

resources mining exploration WSA:AU

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bltoll@optusnet.com.au

Isn't it a bit generalist to group all commodities together. I would have thought it would be more relevant to consider say lithium and graphite versus coal and oil. The generalist approach taken fails to consider changing technologies and consumer sentiment and thus how helpful is it other than a 'statement' of history!

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Patrick Fresne

I think you make a good point, but keep in mind most of the companies in the sector are junior exploration companies, and in general it isn't too difficult for such companies to shift focus from one out of favour commodity to another one more likely to attract new investors: For example, a large number of former copper/zinc/nickel explorers have joined the search lithium over the past six months. As a result, there are now around 40 companies exploring for lithium, roughly the same as the number of listed companies representing the Australian agriculture sector. Overall it does seem that there are too many listed resource companies given the current level of investor interest, though hopefully this situation will gradually correct over the next couple of years.

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