The Resources Story - Poor Returns and Little Excitement
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 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...
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