The resources sector should enjoy a solid run into Christmas says Gavin Wates, director of corporate finance for Patersons Securities.

 

How confident are you in the resources sector at the moment?

Across the board we are seeing the resource industry widen and heighten off the back of rising commodity prices. The base metals of copper, zinc and lead are all heading in the right direction.

We’ve seen the market bounce back and it has finally started to convert into real interest and activity in the resources space.

At Diggers and Dealers last month I noticed the sentiment was much more positive than it has been in recent years. I think there will be a solid run into Christmas with plenty of activity in the market – hopefully the start of a several year cycle.

What trends are you watching in the resources sector?

We have seen a real decrease in supply of zinc and a significant shortening in supply which has led to a real increase in the price.

Larger mines that were significant on the world scale such as Century Nickel have shut down and only now is there a flurry of activity for juniors to get into the game.

Shorter term, a lot of people are having a good go at it from an exploration point of view but it is always hard to say – exploration is a high-risk game.

Global threats like nuclear weapons from Korea are starting to weigh on the market and I think we’ve seen its impact specifically on the price appreciation for gold. It could be a huge risk to the market in the short term.

What do you look for when investing in an explorer?

  • Market cap and cash are the most important – investors need to check whether there is an expectation that there will be capital raising to come or whether they will get some value appreciation for that.
  • Investors should choose what commodities they want to be in and have a knowledge of the industry.
  • You want good management and exposure to big discoveries – previous experience is always a good thing.

Which juniors are on your radar?

Certainly one we like is Silver City Minerals (ASX:SCI), it has a smaller market cap but great historical copper hits. It is close to Broken Hill and some great infrastructure. They think they might have found some good mineralisation.

Breaker Resources (ASX:BRB) also has excellent potential. There is indications they could be sitting on a tier one gold discovery.

Draig Resources’s (ASX:DRG) Bellvue gold project in WA is looking like they might revive the one of the country’s highest grade gold mines. If their geological theory is right they have make a significant extension on the previous mine.

 

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.