Ground Breakers: Australia's top resources stocks are worth ... how much?

The value of Australia’s top 150 mining stocks rose 18% to $713 billion in the March quarter
The sector is enjoying bullish trade today as improving demand from China drives copper, nickel and iron ore prices higher
Higher coal price forecasts could pose more issues for Yancoal’s Chinese parent Yankuang after lowball bid rejected

A surge in commodity prices at the start of 2022 in the wake of post-pandemic stimulus, inflation and Russia’s invasion of Ukraine powered the value of Australia’s top mining companies to more than $700 billion.

Analysis from Perth brokerage house Argonaut PCF in its quarterly resources thermometer shows the value of the top 150 resources companies on the ASX topped $713 billion on March 31, a massive 18% higher than the $604b the sector was valued at on December 31 last year.

Talk about hot.

The big driver, aside from $260 billion behemothBHP (ASX:BHP) which recored a 26.5% gain as the collapse of its dual listed structure moved the company’s shares entirely to the Australian market, was a 43% gain in the value of lithium stocks in the Argonaut PCF 150.

The chart showing the link between lithium carbonate prices and share valuations is, actually, quite extraordinary in its sheer momentum.

“Argonaut PCF analysis revealed that ASX companies with exposure to lithium show a significant level of correlation to the global lithium carbonate price as illustrated in the chart above,” the brokers said.

“Reviewing the sharp increase in the lithium price and market capitalisations of the underlying commodity, investors may be wary as to if the recent run is sustainable.”

Lithium shares suffered a now infamous sell-off last week on the back of a bearish note on lithium prices from Goldman Sachs which received sudden and vicious blowback from experts in the sector.

Raw materials prices for lithium continue to hold firm despite the negativity. Others like nickel, copper and iron ore suffered a drop amid Chinese Covid lockdowns that now seems to be unwinding, with copper hitting a three month high of over US$9800/t on Monday before a pullback overnight.

The mood was bullish in the local market today with the energy and materials sectors both up more than 2%.

Ground Breakers’ share prices today:

Coal stocks surge as analysts mark up forecasts again

Investment bank Jefferies has marked up its forecasts for thermal coal out of Australia (currently paying upwards of US$400/t) to US$365/t for the second quarter falling to US$350/t in the September quarter and US$300/t in the fourth quarter, prompting investors to bet on the continued strength of coal profits.

There is a growing acceptance in the market that the balance of supply v demand is in favour of producers in the wake of major exporter Russia’s invasion of Ukraine, which has made thermal coal out of the Eurasian nation unpalatable for many customers.

Formal sanctions by the EU are expected to kick in from August.

Yancoal (ASX:YAL) was the biggest gainer, up 8.1% as shareholders rejoiced following news an independent board committee had refused to support a lowball bid from major shareholder Yankuang Energy to buy out the minority owners.

Yankuang responded, suggesting Yancoal shares are only so valuable right now due to a short term run in the coal price.

“The issues raised by the Yancoal Independent Board Committee are acknowledged,” the company said in an announcement yesterday on the Hong Kong Stock Exchange.

“Yankuang Energy would point out that short term factors have caused coal prices to surge in recent times, which has driven the price of Yancoal Shares significantly higher.

“The Potential Consideration for the Potential Transactions was derived after considering long term factors such as the historical trading price of Yancoal Shares, comparable company valuations, comparable transaction valuations, and market consensus on future coal prices.”

That market consensus appears to be balancing more in favour of Yancoal’s minority holders at the minute, a group which includes major coal producer and exporter Glencore — believed to be willing to sell at the right price, but not for the US$3.60 a share convertible notes offered by Yankuang.

As more banks up coal price forecasts it could place additional pressure on Yankuang to lift its bid. Yancoal shares surged 9.72% this morning to $6.21 and are worth more now than before Yankuang issued its $5.07 bid last month.

Yankuang argues the convertible notes could be converted into shares in the more diversified company, sold for cash or held as an investment. It already owns 62.3% of Yancoal, but would require Foreign Investment Review Board approval to take out the whole thing.

Other coal miners were also up this morning, with Whitehaven Coal (ASX:WHC), Stanmore (ASX:SMR), Bowen (ASX:BCB) and Coronado (ASX:CRN) joining Yancoal on the winners’ list.