The Australian resources sector within the context of the global outlook - Presented at
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Transcript of The Australian resources sector within the context of the global outlook - Presented at
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Australia’s Boutique
Resource Investment Firm
MPSM A R T I N P L A C E S E C U R I T I E S
MPSM A R T I N P L A C E S E C U R I T I E S
Barry DawesB Sc FAusIMM(CP) MSAA MSEG
Managing Director
Martin Place Securities
Australian Resources Sector Outlook for
2012
Mines and Money
Sydney 10 October 2011
MPSM A R T I N P L A C E S E C U R I T I E S
DisclaimerNothing in this presentation shall be construed as a solicitation to buy or sell any
security or product, or to engage in or refrain from engaging in any transaction. In preparing this research, MPS did not take into account the investment objectives, financial situation and particular needs of the reader.
Before making an investment decision on the basis of this presentation, the reader needs to consider, with or without the assistance of an adviser, whether the advice is appropriate in light of their particular investment needs, objectives and financial circumstances.
This presentation is based on information obtained from sources believed to be reliable but MPS does not make any representation or warranty that it is accurate, complete or up to date. MPS accepts no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice and accurately reflect the views of MPS at the time of writing.
This presentation has originated from MPS (ABN 30 094 927 947), a licensed securities dealer (AFS Licence 247 404). MPS can gain income through brokerage, capital raising commissions and corporate advisory fees.
MPSM A R T I N P L A C E S E C U R I T I E S
Global Outlook Dichotomy• China and other BRIC making >60% global growth
• Commodity volumes and US$ prices increasing
• Rising living standards
• OECD (US, Europe and Japan) locked in debt
• `Quant Easing’ debasing OECD currencies
• Falling living standards
• Flight of funds from cash and bonds
.commodities to be major beneficiaries..
MPSM A R T I N P L A C E S E C U R I T I E S
Commodity Outlook I• Emerging economies emphasise basic industries
• BRIC long term secular growth vs OECD cyclical
• 20 years of underinvestment in commodities
• Low inventory of undeveloped projects
• `Peak Oil’, `Peak Gold’?, tight copper
• Expenditures up but few major discoveries
..commodity prices to rise further...
MPSM A R T I N P L A C E S E C U R I T I E S
Long term commodity prices
MPSM A R T I N P L A C E S E C U R I T I E S
Commodity Outlook II• Steel industry is key driver for:-
- Iron ore, met coal, Ni, Zn, Mo, Co, Va
• Base metals have high mine utilisation rates
• Non-OECD energy demand exceeds OECD
• Oil, gas & uranium have tight supply lines
• Gold and silver boosted by currency turmoil
• Minor metals scarce – Wo, Sb, Cd, Ti
• Rare Earths and Li driven by new technologies
MPSM A R T I N P L A C E S E C U R I T I E S
Australia’s Resources Investment Outlook
• Major beneficiary of global steel boom
• Rising export income >A$210bn
• >A$175bn resources investment planned
• >100 new projects underway
• Resources equity earnings growth attractive
• Exploration and development gains
• Strong currency
MPSM A R T I N P L A C E S E C U R I T I E S
MPS Wave Market Psychology
MPSM A R T I N P L A C E S E C U R I T I E S
Global Consumption Growth
10Source: IEA 2010
MPSM A R T I N P L A C E S E C U R I T I E S
Annual Steel Production
Source: World Steel Association
MPSM A R T I N P L A C E S E C U R I T I E S
Annualised Steel Production
Source: World Steel Association
MPSM A R T I N P L A C E S E C U R I T I E S
Australian Iron Ore Exports (mt)
Source: ABARES / MPS forecasts
I - forecast
MPSM A R T I N P L A C E S E C U R I T I E S
Pilbara Iron Ore Operations
Source: Fortescue Metals Group
MPSM A R T I N P L A C E S E C U R I T I E S
Australian Coal Exports (mt)
Source: ABARES
MPSM A R T I N P L A C E S E C U R I T I E S
Central Queensland Coal
Source: Queensland Government
MPSM A R T I N P L A C E S E C U R I T I E S
China is leader in basic industries
• 8-10%pa growth rates being maintained
• Major internal migration
• Basic industries still growing
• Over 40% of global demand for most metals
• Aggressively acquiring global resources
• Massive foreign reserves to fuel growth
MPSM A R T I N P L A C E S E C U R I T I E S
China’s Share of Metals Consumption
Source: Various
MPSM A R T I N P L A C E S E C U R I T I E SShanghai Stock Exchange (SSE) Composite
(Monthly)
Source: StockCharts.com
MPSM A R T I N P L A C E S E C U R I T I E S
Global Capital Flows and Investing
Three major features in global economy
– BRIIC et al exceeding OECD demand and growth
– Supply-side issues for commodities continuing
– West is debasing currencies through debt problems
........the money flow is into hard
assets...
.... and AUSTRALIA is a big winner..
MPSM A R T I N P L A C E S E C U R I T I E S
Following the Money• Global pessimism means high cash levels
• CB roles mean abnormally low interest rates
• Negative real interest rates applying
So….
• 30yr bull market in bonds and financial assets over
• Flight from cash and bonds to flow into hard assets
• Resources stock to benefit
• Strong commodity currencies attractive
MPSM A R T I N P L A C E S E C U R I T I E S
Following the Money• Global pessimism means high cash levels
• S&P 500 Cash US$1,800bn
• Corporate USA ~US$3,000bn
• Australian GDP A$1,300bn
• All Ords market value A$1,300bn
• Australian Super A$1,350bn
• Australian bank deposits A$1,330bn
• Australian Super cash ~A$350-400bn
MPSM A R T I N P L A C E S E C U R I T I E SASX 300 vs Australian Bank Deposits (A$bn)
Source: RBA IRESS
MPSM A R T I N P L A C E S E C U R I T I E S
The Long View on US T-Bond Yields
Source: IRESS MPS
0
2
4
6
8
10
12
14
16
1940 1944 1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
1942 -1981 39 Yrs rising bond yields 1981-2009 28 Yrs falling yields
InflationDisinflation
Deflation
Reflation
0
2
4
6
8
10
12
14
16
1940 1944 1949 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
1942 -1981 39 Yrs rising bond yields 1981-2009 28 Yrs falling yields
InflationDisinflation
Deflation
Reflation
MPSM A R T I N P L A C E S E C U R I T I E S
Outlook for Australian Resources
• Commodity volumes and US$ prices rising
• Resources corporate earnings rising
• Resources equities significantly discounted
• Exploration and development surprises
• Rising A$ attractive to global investors
MPSM A R T I N P L A C E S E C U R I T I E SAustralian Resource Sector Exports (A$bn)
ABARES 2000-11 MPS estimates to 2015
Source: ABARES, MPS
MPSM A R T I N P L A C E S E C U R I T I E S
ASX Metals and Mining Index
Source: IRESS
MPSM A R T I N P L A C E S E C U R I T I E S
Non Ferrous Metals Market Share
Source: Mark J Lundeen
MPSM A R T I N P L A C E S E C U R I T I E S
Gold a Major Driving Force
• Gold in bull market in all currencies
• Supply constrained by inelastic mine output
• Central banks now net buyers
• Demand strong from jewellery and hoarding
• Gold stocks rising after 30 years consolidation
• Gold likely to exceed US$2000 then US$5000
MPSM A R T I N P L A C E S E C U R I T I E S
Long Term Gold Price
Source: Eric de Groot
MPSM A R T I N P L A C E S E C U R I T I E S
10 Year US$ Gold Price
Source: Stockcharts
MPSM A R T I N P L A C E S E C U R I T I E S
Gold Sector Outlook
• Gold price likely to exceed US$2000/oz
• Gold price alltime highs in all currencies
• Strong gold demand from all sectors
• Global mines supply beginning to rise
• Australian gold to rise 50% to >390t by FY15
• Global gold sector equities very cheap
• Earnings and dividends to rise sharply
• Only early stages of major bull market!!
MPSM A R T I N P L A C E S E C U R I T I E S
Long Term A$ Gold Price
Source: Stockcharts
MPSM A R T I N P L A C E S E C U R I T I E S
Australian Gold Exploration (A$m annualised)
MPSM A R T I N P L A C E S E C U R I T I E S
Yilgarn Archean Greenstone Belt
Source: Gold Road Ltd
MPSM A R T I N P L A C E S E C U R I T I E S
Yilgarn New Producers
Source: MPS
Yilgarn FY10 FY11 FY 12 FY13 FY14 FY15
Alacer Gold AQG 229 300 325 350 400 400
Carrick CRK 0 0 0 20 50 75
Focus Minerals FML 0 20 200 220 220 250
Integra Mining IGR 0 55 105 125 140 185
Norton Goldfields NGF 140 140 150 150 175 180
Ramelius Res RMS 61 80 140 180 230 250
Regis Resources RRL 0 81 110 350 310 310
Saracen Minerals SAR 40 111 125 200 250 260
Silver Lake Resources SLR 67 77 125 200 300 300
St Barbara SBM 231 258 320 350 350 360
Total koz 768 1123 1600 2145 2425 2570
Total Tonnes 24 35 50 67 76 80
MPSM A R T I N P L A C E S E C U R I T I E S
Australian Gold Production (t)
Source: ABARES MPS
Year End June
MPSM A R T I N P L A C E S E C U R I T I E S
Australian Gold Mine Production
Source: ABARES MPS ests
MPSM A R T I N P L A C E S E C U R I T I E S
Long Term ASX Gold Index
Source: IRESS
MPSM A R T I N P L A C E S E C U R I T I E S
ASX Gold Index Vs A$ Gold
Source: IRESS
MPSM A R T I N P L A C E S E C U R I T I E S
Long Term Gold Shares
Source: Eric de Groot
MPSM A R T I N P L A C E S E C U R I T I E S
US Gold Stocks vs S&P 500
Source: Stockcharts
MPSM A R T I N P L A C E S E C U R I T I E S
Gold Stocks Market Share in US
Source: Mark Lundeen
MPSM A R T I N P L A C E S E C U R I T I E S
Long Term US Gold Stocks vs Gold
Source: Stockcharts
MPSM A R T I N P L A C E S E C U R I T I E S
Making sense of it all• Commodity volume and price rises to continue
• Australian resource corporate earnings to improve
• Foreign investment in Australia to grow further
• Cash mountain to drive market higher
• Sharemarket to boom as new players enter
• New capital infusion to boost exploration
..Resources stocks boom time!!...
.......it could be very big
MPSM A R T I N P L A C E S E C U R I T I E SAustralian Resource Sector Exports (A$bn)
ABARES 2000-11 MPS estimates to 2015
Source: ABARES, MPS
MPSM A R T I N P L A C E S E C U R I T I E S
A$ vs US$ 1913 - 2011
Source: Thechartstore.com
MPSM A R T I N P L A C E S E C U R I T I E S
A$ vs US Gold Index (XAU)
MPSM A R T I N P L A C E S E C U R I T I E S
Conclusions• Gold price to be very strong
• Commodities to follow
• Capital flows critical to outlook
• Resources sector underowned
• Earnings and dividends to be remarkable
• A$ to be very strong
• Exploration opportunities on the way
• Expect a major Mining Boom
The `Optimism’ leg now underway!
MPSM A R T I N P L A C E S E C U R I T I E S
MPS Wave Market Psychology
MPSM A R T I N P L A C E S E C U R I T I E S
ASX Metals and Mining Index
Source: IRESS
MPSM A R T I N P L A C E S E C U R I T I E S
MPS Wave Market Psychology
MPSM A R T I N P L A C E S E C U R I T I E S
Long Term Dow Jones Ind Index
Source: Thechartstore.com
MPSM A R T I N P L A C E S E C U R I T I E SRecommended Strategy
Optimism Upleg – Higher Risk/Reward
• Large caps – 30% BHP WPL NCM
• Mid caps - 40% IGO FMG PDN SMR AQA LYC
AGO
• Small caps – 20% » 5% Gold 5% Energy 3% Iron ore 2% Copper
2% Base Metals 2% Exotics
• Microcaps - 20%» 5% Gold 5% Energy 3% Iron ore 2% Copper 2%
Base Metals 2% Exotics