Resources investment will rebound across many commodities, says advisor
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Optimism in the resources sector is justified at least for the next six to 12 months, says corporate advisor John Hannaford of View Street Partners
Resources is one of your specialities. Do you agree the resources sector is recovering at the moment? What signs are you seeing?
We’re all a little bit sceptical of recovery because we’ve had the green shoots before and that’s got everybody a little bit circumspect about it. In the last four years we’ve had a couple of promising rebounds that have just fallen flat.
But this time I’m quite optimistic it is a real recovery because you’re seeing improvements across a number of different sectors. Iron ore prices are up, gold prices are reasonable, copper prices are up and you’ve got the lithium and cobalt sectors which are getting a lot of interest.
So, it’s a broad base – it’s not just one particular subset of resources which is getting interest.
Also here in Perth there is a very high correlation between the stock market, the jobs market and the property market. You see them all starting to improve, and it seems that we’re coming out of a long flat period.
The optimism is now apparent. I’ve just come back from a couple days up at Diggers & Dealers where it was a very optimistic mood. Instead of people with a view of just surviving, now they’re looking forward and people are looking at investing.
The feedback we’re getting is that the larger companies are now looking to take on green fields exploration, which hasn’t happened for a while.
Drilling companies are flat out and all his rigs are getting full. It doesn’t feel like things are going to die down.
Anecdotally, its hard to find a rig or a geologist in Kalgoorlie.
We’re quite optimistic for the next six to twelve months at least in resources.
Whether it’s back to boom time or not, I don’t think anyone knows yet. But, there’s a bit more of a solid base now. You can take on people and companies can raise the capital to go and take their projects to the next step.
Which particular metals or minerals do you think will do well over the coming year?
Lithium and cobalt have been very sought after as exploration plays. If these companies can raise real capital to develop their projects – which they are, as there’s $2 billion of projects supposedly at the planning stage for WA for lithium – that will be a key driver there.
Lithium and cobalt need to consolidate to be long-term sectors in their own right. We need some of the downstream processing to happen here in Australia and investments by off-take partners (customers) to really underpin that growth.
Gold is always a fairly safe bet in WA, and with the price stable around these levels the gold companies are now looking to expand.
The copper price is looking increasingly solid, and nickel has come off its bottom, so some projects are being brought back into consideration, and exploration interest is recommencing.
What trends in mining do you think small cap investors should pay attention to?
One different commodity is Potash. China’s protein demand translates into land use and fertiliser demand — which is where potash is needed and demand is rising. There’s probably half a dozen potash companies looking at brine projects in the salt lakes in WA, all with large scale projects on the drawing board. We haven’t seen that level of potash interest before in a commodities boom.
Whether they all have the capacity to get into production remains to be seen. They are quite large projects – $200 million odd capex is about an average. If they can prove the metallurgy they’re in a good space because sulfate of potash is a high-grade part of that market and prices are going up. We’re in a good position because Chinese and Indian customers have a high demand for it.
Mining technology is an interesting play. In WA, we’re at the forefront of innovation in mining. The big companies have started to focus on lowering their costs and invest a lot in innovation in terms of their infrastructure. We’re seeing some very interesting things in that space.
How easy is it for companies to access equity at the moment?
Perth does resources really well. There’s a big pool of capital for resources here and that’s starting to see a lot more companies raise money.
Between now and the end of the year, you will see a lot of companies raise money as they try to make sure they have enough funding through to the new year. If things start to improve, you’ll see a lot of that happening.
What we don’t really do that well in Perth is non-resources. There are really interesting companies in the agriculture and technology and industrial technology spaces.
Some of the things we’ve done recently have been in the agri-business apace including abalone farming, and another company that is the major producer of octopus in the country.
They’ve both had a high level of support and interest because of the boom in soft commodities, the ‘dining boom’ because of China’s protein demand.
On technology, it’s harder to raise money for now because we’ve seen a number of companies that promised a lot of revenue and didn’t deliver.
What three things do you look for when investing in a company?
Particularly at the smaller end, it starts with the people, the product and their model — basically how they’re going to grow and make money out of that particular product. Those three things have to be present before I really take things to the next step.
John Hannaford is a co-founder and director of View Street Partners.
John is an experienced corporate financier with extensive experience from several corporate roles, predominantly with a resources emphasis ranging from listed mining and exploration companies to oil producers and oilfield construction groups.
Perth-based View Street Partners helps companies reach a wide audience of investors and capital markets. They specialise in capital raisings, corporate and strategic advice and introducing board members.
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This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.