The Noosa Mining Conference is about junior companies transforming through exploration, discovery and/or development of a resource. Market interest in the juniors continues to build momentum, as seen via the near 1,100 attendees at the conference this year. However, this is yet to fully translate into their market capitalisation, as the juniors continue to lag their large cap peers. This offers clear opportunities for believers in the cycle.
Did you realise that Australian mining is booming?
The casual onlooker could be forgiven for thinking the Australian mining sector is still battling its way out of the doldrums. This couldn't be further from the truth. Australian mineral production is booming. In the past 15 years, output of key commodities like coal, copper and bauxite has doubled-to-tripled, while larger industries like iron ore have grown nearly six-fold, and LNG eight-fold.
Not surprisingly the value of Australian mineral exports today is nearly five times higher than pre-boom levels. The industry's relentless focus on costs and the lower Australian dollar are also major drivers here.
Robust metals pricing has followed improved global growth and producer discipline on the supply-side, while China's reform of its domestic industries has sustained far higher floor prices in bulk commodities since 2016. China's enforcement of environmental reforms continues at a furious pace, which markets have so far under-estimated. This is undoubtedly positive for suppliers of higher quality ores/inputs into the medium term, including iron ore, coal and bauxite where Australia sits atop of the quality curve.
Mining producers are enjoying strong profitability in key commodities, enjoy balance sheets strong enough to flush significant amounts of capital back to share holders and are being rewarded for it on market.
So if conditions are booming, why doesn't it feel like it for junior resources investors?
What's holding Junior Resources stocks back?
Junior resources stocks (as measured by the ASX Small Resources Index) have enjoyed an approx. 50% re-rating since last year's Noosa Mining Conference. Surprisingly, large-cap producers (BHP etc) have nearly matched that performance, rising by 38%. Normally the juniors accelerate ahead of the producers as the cycle builds momentum, but confidence has been slow to filter through to the juniors this time.
We think uncertainty exists among investors at the junior end of the resources market. Fragile confidence reflects:
- uncertainty in the demand environment (not helped by the prevailing macro-economic risks around trade, etc);
- a lack of western-world appreciation for the determination driving China's reform; and
- the likelihood that the pain of the 2012-16 downturn is still too raw for most marginal resources investors.
Looking for opportunities – our key picks from the Conference
Our key picks include producers which look cheap relative to their cashflows, under-appreciated developers, and explorers with upcoming drilling which could prove transformational.
We have identified 11 key picks in total (Morgans clients can login to view). Daniela Cambone from Kitco News interviewed senior executives from three of those companies. You can watch these interviews below:
Craig Lennon – Highlands Pacific Limited (HIG)
Peter Harold – Panoramic Resources (PAN)
Simon Finnis – Metro Mining Limited (MMI)
More information and interviews
You can watch all the interviews from the Noosa Mining Conference on the Morgans YouTube channel.
Morgans clients can login to view our 11 stock picks from the Noosa Mining Conference. Alternatively, please contact your Morgans adviser or nearest Morgans office for access. Alternatively, please contact your Morgans adviser or nearest Morgans office for access.
Disclaimer(s): Analyst owns shares in Metro Mining Limited (MMI).
Morgans Corporate Limited was co-lead manager to the placement of shares in Metro Mining Limited and received fees in this regard. Morgans Corporate Limited is a Participating Broker to the placement of shares in Metro Mining Limited and may receive fees in this regard.
The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.