Could Cyclones Trevor and Veronica affect mining stocks?
This weekend, northern Australia will be hit by two cyclones. Cyclone Veronica will hit the Pilbara in Western Australia whilst Cyclone Trevor will strike the Northern Territory, having hit Far North Queensland hours earlier.
November to April is always cyclone season in northern Australia, with the peak period in February and March. Some years are worse than others and can cause damage that can last for several years.
The one that would spring to the minds of most Australians would be Cyclone Tracy (which in 1974 destroyed 70 per cent of Darwin’s buildings). Among the most deadly since were Cyclone Yasi in 2011 and Cyclone Debbie in 2017.
While Cyclones Trevor and Veronica are not the first cyclones of the year, they will most likely be the most severe.
Meteorologists are predicting Veronica could reach Category 5 (winds over 280km/h) and Trevor could reach Category 4 (winds over 225km/h).
While much attention will be on the residents and farmers, mining stocks will be affected as well even if they are not in the direct path.
Ports and roads will be closed. While this will most notably affect the big firms such as Fortescue and BHP, these may also affect small caps. They will struggle to transport their minerals to buyers.
Especially if 9-metre waves are hitting the shore:
Severe #TCVeronica has intensified to a Category 4 system. Wind gusts at its core are around 270 km/h generating an approximate wave height of 8-9 metres! Expected to reach a Category 5 system Pilbara residents need to be prepared. For the latest updates – https://t.co/LOBlUlftlv pic.twitter.com/MxERyeoPMn
— Bureau of Meteorology, Western Australia (@BOM_WA) March 21, 2019
Such easy access to ports and buyers is often a deal-maker for investors, particularly those who ship their minerals straight to Asia.
While inevitably prices rise if there is an undersupply, high prices are of no use if there is no supply at all.
The Pilbara ports of Dampier, Ashburton and Port Hedland are being cleared in preparation for the cyclone. BHP and Fortescue are monitoring the situation.
While they last did this only two months ago, prior to Cyclone Riley, Veronica is anticipated to be more severe.
For companies whose projects are significantly inland, and rely on several rural roads, their access could be impeded. Even if they are not ‘cut off’ due to damage, they may be closed by local councils until a clean up has occurred.
Nevertheless, mining companies in other less mining friendly jurisdictions would envy the position where a cyclone would be their only major worry.
It seems investors are waiting to see the damage done with only two mining companies with interests in affected areas suffering significant losses in the last day. These were Venturex Resources (ASX: VRX) and Redbank Copper (ASX: RCP) who have lost 10 per cent and 17 per cent respectively.
Howeve,r Venturex’s decline could be explained by the completion of a $3.7m placement. There has been no news out of Redbank since releasing their half-yearly last Friday.
Undoubtedly if operations are disrupted, shareholders will know. But it may take the company some time to assess the full extent of the damage, if any.