InvestSMART

INSIDE INVESTOR: Is the resources boom over?

The mining boom is not over, it has merely reached scale. As such there should be some rich pickings for investors in the resources sector in 2013.
By · 31 Dec 2012
By ·
31 Dec 2012
comments Comments

You know that old Mark Twain quote: "The reports of my death have been greatly exaggerated.”

The same goes for our resources boom. The past few months have seen screaming headlines pronouncing the end of the boom, we’ve had politicians pointing fingers and shock jocks doing what shock jocks do.

Most of the commentary misunderstands exactly how the boom has run its course and the implications for the future.

The simple fact is that the resources boom that began in 2001 will have a lasting impact on our economy. What is rapidly ending, is not the boom itself, but the investment phase of the boom which is really just the initial stage.

When raw materials prices headed into the stratosphere, because of demand from China, all our big miners expanded their operations and new companies entered the arena. To get all those new operations going, they began importing huge amounts of machinery and cash to finance these massive new mines.

That’s been a big factor in the Aussie dollar’s dramatic rise. With that investment phase coming to an end, the burner underneath our currency should turn down a notch or two. And that will mean our miners’ earnings will lift because they will become more competitive on the international stage.

The share prices of most miners were walloped a few months back, particularly when iron ore prices slumped below $US90 a tonne. But ore prices have since recovered to around $US120 a tonne.

That’s a long way short of the record prices last year. But it is a long way north of the prices our miners were getting a decade ago. In 2001, a tonne of iron ore fetched just $12 a tonne.

Many of the mine expansions are now almost complete or have been put on ice. That means our miners will no longer be spending billions of dollars on expansion and may have more to distribute as dividends down the track.

And once the full production comes on stream, they will be shipping greater volumes than ever before. On the demand side, it would appear China has come through its rocky patch and while its economy is unlikely to grow at the frenetic pace of previous years, it will continue to expand and urbanise at a rate that will require vast amounts of raw materials.

So the boom has a long way to run. And the second stage could throw up some interesting investment opportunities.

Google News
Follow us on Google News
Go to Google News, then click "Follow" button to add us.
Share this article and show your support
Free Membership
Free Membership
Ian Verrender
Ian Verrender
Keep on reading more articles from Ian Verrender. See more articles
Join the conversation
Join the conversation...
There are comments posted so far. Join the conversation, please login or Sign up.