Knees-up for junior miners as 2017 is waved goodbye
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Junior miners and explorers are starting to shut up shop for the festive season but before they do, they have some serious celebrating to do.
It is a case of knees-up at work parties across the country as the juniors give thanks for the joy delivered by the broad advance in commodity prices in 2017.
The gloom and doom that pervaded Xmas bashes following the 2011-2012 commodities price collapse has been replaced with a renewed confidence.
This renewed confidence reflects the flow on effects of greatly improved commodity prices, on an annual average basis.
Investors responded in 2017 by pushing share prices higher and good exploration results are again being responded to with gusto.
The commodity prices gains – only the precious metals of gold and silver look like falling short of last year’s annual average – reflect a whole range of things, some with broad impacts, others with commodity specific impact.
On the broad scale, there have been positive signs that cohesive economic growth is taking hold in the global economy, and due to the lack of investment since 2011-2012, supply channels are tightening.
More commodity specific impacts have included China’s war on pollution, the “value over volume’’ mantra of the major miners, and the remarkable impact of the electric vehicle revolution on battery materials.
Like a cobalt from the blue
The battery materials sector was the place to be in 2017. Cobalt went ballistic, more than doubling from its average price in (calendar) 2016 of $US25,000 a tonne to more than $US72,000/t this week.
Lithium’s price performance was nowhere near as spectacular in 2017 as it has become a volume growth story, with current prices sufficient to incentivise a supply response. Other metals to benefit from the EV revolution like copper and nickel also did well in 2017.
And the battery materials are expected to continue to do well in 2018. Ongoing supply tightness is expected to at least underpin current prices.
Juniors’ time to shine
But that means investors won’t be able to rely on commodity price moves alone when they are making their stock selections, a situation that prevailed for much of 2017.
In a flat to slighter firmer pricing environment, stock selection will increasingly swing around to the potential for the juniors involved to secure offtake agreements and development financing packages.
While 2017 was very much about the battery materials boom, gold remained the backbone of the junior mining and exploration industry.
Pilbara the new Witwatersrand
And what a year it was, even with gold’s lacklustre price performance (the current price is ahead of its starting point of the year but the average price for 2017 will be lower). The wonders of the Pilbara gold nuggets-in-conglomerates yarn made sure of that.
The sight of fistfuls of melon seed-sized nuggets being plucked from the Pilbara’s extensive conglomerates fired up both company and investor imaginations. Comparisons with South Africa’s fabled Witwatersrand stoked the fire.
The year ahead will be crucial in proving if anything economic can come of it all. Either way, it has been fun, even if the lead players in the conglomerates hunt, Canada’s Novo and our own Artemis, are currently down 40% and 50% respectively on their 2017 share price highs.
End of year festivities at the junior gold producers and explorers have not suffered from the year-end weakness in prices. In Australian dollar terms, the current price of $1,650 an ounce remains at historically high levels.
Margins on average $1,000-$1,200 production costs remain robust which has been reflected in the cash build inside of the established producers. Investors are aware of that and have started to wonder when the cash gets turned to merger and acquisition activity.
Established producers have already been busy snapping up cornerstone stakes in explorers with advanced exploration projects which but for some funding, could become mines in quick fashion.
It could well be a major theme as 2018 unfolds, particularly if the current weakness in gold prices presents a discounted opportunity for those with cash to pounce.