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Mining
We’re all pretty well aware of how 2020 will go down in the history books as a whole, but for ASX resources investment the year proved a surprising record breaker.
According to figures crunched by PCF Capital Group, the local market’s mining collective raised $8.8 billion on the market last year – the most it has ever amassed in a calendar year.
The closest was pre-GFC in 2007, when $7.7 billion was raised by ASX-listed mining stocks in 12 months – a full $1.1 billion shy of last year’s extraordinary mark.
The significance of that figure and fact is not lost on PCF managing director Liam Twigger.
“It’s been an amazing year, and when you think that the first half of the year had the chaos of Covid-19 and the change in the Foreign Investment Review Board rules which came in in March which knocked a lot of deals for six – even within that we saw money come in,” he said.
“Most that money went to producers and developers, and we saw a return of appetite for exploration IPOs. We had 24 of those last year – a very good number.”
The fact much of the investment happened at the producer and the developer end of the mining market should come as comfort for junior explorers, which Twigger predicted would be favoured this year as commodities surge again on the back of astounding economics.
“Pre-GFC times we had a commodities boom in Australia, when iron ore went through the roof and all commodities were looking terrific – that was really just on the back of China,” he said.
“We’ve never seen this sort of synchronised growth we’re seeing right now before. We’ve got every country in the world stepping out of the gate at the same time with a supercharged cheque book and economy.
“The fundamentals for meeting those needs in Australia are outstanding. The next three years or so are going to be great over the next three years or so, certainly for WA, and for money coming into mining companies of all sizes.
“I think we’re going to see a cycle the likes of which we’ve never seen before.”
General commodities aside, the narratives Twigger expects to thrive into the new year are those around iron ore and battery metals.
“Copper and nickel in particular look outstanding, and I think there’s a number of emerging Kambalda nickel floats coming out where they’ve got that high grade production and the ability to leverage off existing infrastructure,” he said.
“Proximity to infrastructure can be an area where juniors come unstuck – it’s very difficult for a junior to come out and say ‘I’ve got a large project but I need $500 million’ – ideally you want to be placed where the capex cost isn’t too large.
“The benefits of Kalgoorlie and Kambalda is there are concentrators and smelters and railways there, so the cost of getting into production is a lot lower and getting into production happens a lot quicker.”
One company Twigger identified as being well placed to tackle the new year is Brightstar Resources (ASX:BTR) – reborn from Stone Resources with a prospective gold asset in the right place to capitalise.
Brightstar, a PCF client, was recapitalised last year, cleared around $53 million worth of debt and cancelled a number of shares.
“They had a $1 million market cap, now they’re up at $25 million” Twigger said.
“We’ve seen Brightstar emerge from that with nearly 400 million shares on issue, pretty much debt-free, and with 500,000 ounces worth of resources and a treatment plant in the Laverton area.
“That’s a really good example of where value can be created out there for investors.”
In the lithium space, Twigger expects the smart money to go to those planning on doing a bit more than just digging spodumene out the ground.
“We’ve seen that with the smart money at Pilbara Minerals – they’ve got joint ventures in place looking at downstream technology, and I think that’s where you need to be, rather than just digging it up,” he said.
The continued emergence of environmental, social and governance (ESG) issues through 2020 culminated in a letter from Larry Fink, the head of BlackRock, to CEOs, stressing the need for companies to have a climate change policy and a pathway to becoming climate neutral.
“I believe that the pandemic has presented such an existential crisis – such a stark reminder of our fragility – that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives,” the letter read.
This level of rhetoric coming from the head of the world’s biggest investor should not be understated, according to Twigger.
Coupled with a renewed investment enthusiasm from a youth demographic driven in part by social media and reddit and a flow of funds freed up in Australia by last year’s early access to superannuation, companies of all sizes are encouraged to pay more attention to their carbon and ESG policies. It could make a substantial difference to a company’s chances of success.
“This has moved beyond a debate as to whether you believe in climate change or not,” Twigger said.
“The young people of today want to see how you can become carbon neutral, and that’s going to shape the capital. You might get away for a while as a junior, but once you start getting into bigger money your governance is going to be scrutinised.”
The scrutiny of the swarm – young retail investors borne out of online forums and internet groups – adds another layer of importance of management sticking to its word.
“Young people never used to buy shares, they weren’t interested in buying shares, and it was a point of frustration for some,” Twigger said.
“Now, care of social media and reddit, there’s this swarm capacity, where they’ve got 4 million young people investing in things based on a reddit post.
“That may change the landscape for resource companies and for raising capital. On the traditional side you’ve got retail investors but then you’ve got this swarm as well, which might take you down if they don’t like the way you’re running yourself.”
At Stockhead, we tell it like it is. While Brightstar Resources is a Stockhead advertiser, it did not sponsor this article.
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