MARKETS SPECTATOR: Mining the plateau

Oz Minerals chairman Neil Hamilton doesn’t believe the mining sector is on a slippery downward slope. Rather it has reached a plateau along with Chinese economic growth, commodity prices and spending by the miners.

Hamilton told Markets Spectator that returns have been hammered in the resource sector.

“Costs are increasing and this, combined with moderating commodity prices and a strong dollar until recently, has caused people to stop and pause on future capex. It is time to get future operational structures in place.”

The Oz Minerals chairman says each part of the mining sector has its own cost and return profile, with perhaps the greatest pressure currently on gold producers whose costs of production are $US1,000 or more per ounce.

Spot gold was down 63 US cents at $US1,413.61 a troy ounce, according to Bloomberg data. The price of spot gold has fallen 16 per cent this year and has slumped 21 per cent from its 12-month high of $US1,790.40 on October 4, according to Bloomberg.

“There is a lot of pressure on marginal gold producers and to a lesser extent on marginal iron ore producers,” Hamilton says.

The spot price for iron ore imported through the Chinese port city of Tianjin was $US111.60 a tonne on May 30, down 1.2 per cent from $US112.90 on May 29, according to Bloomberg. The Tianjin iron ore spot price has fallen for four consecutive days. It is down 17 per cent this month and 30 per cent from this year’s high of $US158.90 a tonne on February 20.

Hamilton says while he doesn’t like the market’s reaction to Oz Minerals shares, the stock is down 40 per cent this year and is trading at a price to book value of 0.45, he has reluctantly accepted it.

“Everyone wants their share price higher just like we all want our footy team to win,” he says.

“The market, one, either doesn’t believe in the fundamental value of the company or the market is nervous, or the momentum of investing in slowing. We’ve got to get on and run the company as best we can. We can’t be sitting there gazing at a screen.”