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Experts
MoneyTalks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.
Today we hear from Michael Gable, managing director at Fairmont Equities.
It suddenly feels a long time ago, but China pulled off an economic trick that lasted almost two decades.
Right now while Beijing is trying to prop up its own property market, there’s a host of baby step measures to loosen the taps at its more reliable, mostly state-owned developers.
Because post-COVID, China hasn’t looked itself. It’s on the wrong team in a quickly shifting bipolar world and its trade, exports and imports and FDI direct foreign investment has almost dried up. one in five youngsters don’t have a job.
And last week or so, the central bank made its deepest cut in three years to a key interest rate.
Stimmy time?
“Everyone has become far too negative on China, so right now I am looking at the resources sector,” says Michael Gable lead postrtfolio manager at Fairmont.
“Despite the negativity around the Chinese economy, coal and iron ore prices have started to rebound in the past few days. This indicates the smart money is starting to position already.
“When people go too far in one direction, the opposite trade is often a great opportunity. For proof of this, just look at buying tech in January, which was a winner and retail in June.
“Resource stocks here should do very well because investors will once again catch on to the fact that it can’t get any worse.
“Stock prices will move well before the media headlines catch up and I am already seeing signs of solid buying into the resources sector down here, so right now I’m looking at stocks like FMG, IGO, and WHC.
FMG delivered at the top end of its 2023 guidance in late July, setting a new shipping record in its Pilbara iron ore business (Ed: which was 92Mt, a 2% lift on FY22), Gable points out.
“And they’re bullish about their own prospects too, looking to do it again next year, now especially with the ramp up of the long-awaited Iron Bridge magnetite mine, which shipped first concentrate exactly 1 month ago, on July 24.”
(Ed via Josh: to add 7Mt to its output of 192-197Mt in FY24 at a [hematite] cost of US$18-19/wmt.)
“Not a one trick pony, outside drilling in iron ore, FMG has been exploring for other metals including lithium and copper, with the company placing a focus on target generation at its copper assets in South Australia where drill testing is planned for the second quarter. It also has drilling programs internationally across Argentina, Chile, Brazil and Kazakhstan and its iron ore exploration focused on resource definition drilling at the Nyidinghu and Mindy South projects.
“The stock price has bounced off the bottom of its recent trading range and looks set to retest the recent peaks near $23. That is a very crucial resistance level for the stock.
“If it can clear that, then we are looking at move back towards $26,” Gable reckons.
“WHC shares did very well last year on the back of rising coal prices but the share price slumped six months ago as coal prices eased back.”
“However, the world is starting to wake up to fact that we will need to keep coal-fired power stations running a little longer and this is leading to a firming up in the coal price. There will be next to no investment in new coal mines from here because of ESG concerns so if you already own a coal mine, you almost have a licence to print money,” Gable says.
And this is an astute business.
Whitehaven just dropped a record net profit of around $2.7bn for the full year and did it in the face of declining global coal prices, particularly thermal coal, delivering some unprecedented earnings.
EBITDA (earnings before interest, tax, depreciation, and amortisation ) rose to $4bn, which was a 30% beat on 21-22… and they also just dropped record revenue of $6.1 billion… and they lifted the FY23 dividend by 50% on the previous 12 months.
Here’s CEO Paul Flynn, note the guidance, at the bottom, which was comparatively bullish amid a lot of tight-lipped ASX producers:
“Once again, we saw a solid improvement in our safety results for the year, and our focus on environmental management delivered a very good outcome with zero environmental enforceable actions. Record coal prices and our portfolio of high-quality thermal and metallurgical products allowed Whitehaven to optimize the sales mix for FY23 and maximize our exposure to the strong gC NEWC thermal index.”
“With strong underlying market demand for high-CV, high-quality thermal coal and metallurgical coal, coupled with forecast supply tightness, we recognise the opportunity and importance to improve operational performance.”
“Looking ahead to 2023-25, Whitehaven aims for modest increases in production within a range of 18.7 to 20.7 million tonnes (compared to 18.2 million in 2022-23), managed sales of 16 to 17.5 million tonnes (compared to 16 million tonnes in 2022-23), and costs ranging from $103 to $113 per tonne ($103 per tonne previously).
IGO is a nickel and lithium producer and Gable says even on the materials-heavy ASX, it’s a business ‘in the box seat’ to take advantage of the increased demand for battery metals.
On the last day of July IGO released another solid quarterly update. And the share price fell about 7% on weaker metal prices and off the back of an impairment — this was the excess $880-980 million it paid for Western Areas’ Cosmos and Forrestania mines – and which was registered in IGO’s full year financials.
Yet the counter-cyclical acquisition of IGO’s minority stake in the Tianqi Lithium Energy Australia business has been anything but.
That decision gave IGO a 24.99% stake in the world’s biggest lithium mine, Greenbushes.
With $423m in dividends in the June quarter, Greenbushes alone delivered $1.18b for IGO in FY23, with spodumene concentrate production of 1.491Mt coming above the top end of its 1.35-1.45Mt guidance range at costs of just $279/t (slightly above $225-275/t guidance).
Heres a summary of how it performed:
And here’s a better one from Page 5 of its June quarterly presso:
“We have noticed a few technical signals to suggest that the share price has hit a low and I have been buying back in down here in preparation of a recovery in the share price,” Gable says.
Page 7 from the IGO Diggers and Dealers presso tells its own story too:
The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.
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