Is the worst over?
Resource stocks have been rallying in recent weeks, with miners across all sectors – even the bottom end – enjoying gains.
Australia’s largest resource stock, BHP Billiton, hit a 2016 high today by rising more than $A20 – quite impressive when you consider the stock was threatening to fall below $14 in January.
While gold players have come off the boil, with many reaching 2016 (or in some cases, all-time) highs last month, almost all are much higher now than their 2015 closing prices.
Morgans analyst Adrian Prendergast noted this was the second re-rating event in resources to occur so far this year.
“The injection of positive sentiment has been enough to help commodity prices stabilise, which in turn we expect will be enough to pull us out of the downgrade cycle that has been undermining confidence in resources,” he said.
Prendergast noted that the improvement in some commodities had caught many by surprise.
Many thought the gold price was destined to dip below $US1000 an ounce this year, and there was almost no one who would have tipped an iron ore price of $60/t.
“We expect sentiment had become weak to such an extent that we are now likely to see a widespread ‘relief rally’ unfold across the sector, which could continue in fits and spurts throughout the remainder of 2016 carrying commodities to more sustainable (higher) levels.”
ANZ Research noted last week that while commodities had been one of the best-performing asset classes this year, the issue of oversupply remained, particularly in iron ore and coal.
“Whether commodity markets continue to move higher from here or suffer a reversal will be dependent on supply,” ANZ said.
“The recent rally raises the risk of previously curtailed supply being reactivated. In markets such as industrial metals, margins are improving quickly enough to see that occur in the short term.
“Whatever the case, the sustainability of this current rally will be reliant on how each supply side of the market reacts over the coming months.”
Morgans believes that now is the time for investors to “dip your toe back into the sector”.
It seems that many are, with positive early signs emerging across the sector.
MNN has noticed a substantial pick-up in the quantum and value of capital raisings, and in a further positive sign, many have been oversubscribed.
Most notably was Pilbara Minerals’ $A100 million raising, while Western Areas raised $70 million.
Gold developer Gascoyne Resources secured $15 million, while West African Resources was “swamped” with investor interest after a run of high-grade results, last week raising $12 million.
To earlier stage projects, Salt Lake Potash boosted its $5.2 million raising to $8.4 million on high investor interest, while Hastings Technology Metals scored $9.6 million off the back of a prefeasibility study.
At the much smaller end, raisings by Core Exploration, St George Mining, Helix Resources, Tyranna Resources, WPG Resources, and Liontown Resources were oversubscribed.
All of these signs have led Lion Selection’s Hedley Widdup to declare the time as 5 o’clock on the firm’s investment clock.
“The clock has moved from 4.30 in late 2015 to 5 o’clock now in reflection of improved liquidity for miners,” he told MNN.
“This time is just before the boom starts to take place, so we are saying the stage is set.”
Widdup said the cycle had bottomed.
“Investors broadly have changed their view toward miners, and the realisations that miners are 1) cheap and 2) probably have very little downside on price, have now set in,” he said.
“The conclusion is not centred on the longevity of the recent rally – the rally is only an important piece of evidence.
“Capitulation is over, and strong cash generation and growth appetite in gold is likely to lead to more balance sheet-funded M&A.”
Original article by Kristie Batten of MiningNews.net view the original article here