Mounting recovery of ASX resources juniors will continue, says expert
Link copied to
The Small Ordinaries Resources index could put on another 30 per cent says expert Tim Weir, Executive Director of Precision Funds Management, in this Stockhead Q&A.
How confident are you about the junior resources sector at the moment?
There has been continued optimism with respect to the prices of zinc, copper and nickel – in the last quarter we have seen prices escalate in excess of 10 per cent. We’re now seeing that flow on into the junior resource sector which has seen increase exploration that we haven’t seen for quite some time.
During what was a depressed market, it was difficult to raise capital but if you talk to the drillers now they are back to full utilisation – whether that be for exploration or resource.
Especially at the grass roots exploration level – good results are being rewarded by the share price movements.
How far do you think the current resources recovery will go?
If you go back to the last five years, the ASX Small Ordinaries Resources index peaked at 5500 in 2011-12. By mid-2013 that had declined down to around the 2000 mark and then was completely decimated down to about 1500.
We’re seeing a mounting recovery as numbers start to build up to the 2000s again.
Whether we reach that high again is unknown at this point in time. We always overshoot the mark in both directions as the speculative end of the market is the exploration end.
I think it will be some time before we test those dizzy heights of the resources boom but you can see that the index could easily put on another 30 per cent.
Which juniors are you keeping an eye on?
Galaxy Resources (ASX: GXY) are already in production so they are promising.
Pilbara Minerals (ASX: PLS) are still in the development stage but have had positive re-ratings in their share price in the short term.
Absolute minnow companies like AVZ minerals (ASX:AVZ) have really come from nothing to now have a market cap of $215 million and it’s all off some positive cobalt drilling results in the Congo.
Which regions look promising?
It is fair to say there is a lot going on in Western Australia again as companies become more cautious about entering Africa.
Legislation passed by the Tanzanian government single-handedly crucified the country’s resource exploration market as drilling companies move to more stable sites through Canada and North America.
Do you prefer greenfield or brownfield sites?
I think it is horses for courses – from a risk perspective the producers are your safety net.
We are seeing projects now become viable because of the increases in commodity prices.
Minerals such as zinc have had a significant upward re-rating and old mines have been revisited. The old Zentry zinc mine has been reignited by New Century (ASX: NCZ) and they have had a phenomenal run since re-listing.
There are just so many investors out there and it is amazing how their appetite for risk turns on again off the back of good prices.
There’s a lot of talk about battery metals, but how about the more traditional minerals or fuels?
One commodity that hasn’t rallied is iron ore, off the back of the lagging oil price. We’ve been constrained by high inventory levels across the world and with supply cuts from OPEC [Organisation of Petroleum Exporting Countries] we are really seeing the oil price under pressure.
The market is slowly starting to soak up the additional supply and we would expect to see the oil price normalise to sustainable levels around $US60 a barrel.
Tim Weir is Executive Director of Precision Funds Management. Tim has 20 years of experience in investment and capital markets. He began his stockbroking career with Porter Western in 1993 and served as a partner of the business until it was acquired by Macquarie Bank in 1999. In August 2016 Tim and colleague Tony Kenny launched Precision Funds Management and successfully raised just under $25m.
Precision Opportunities Fund (POF) is a specialist investment manager with a focus on identifying opportunities and undervalued companies listed on the ASX. POF’s principals have significant diversified investment experience in the small and mid-cap sectors of the ASX, both from an investment and operational standpoint. Tim is also on the Board of newly established Corporate Advisory Firm Chieftain Securities.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.