Every day, we’re getting better and better
THE CONFERENCE CALLER: On day one of the RIU Explorers Conference Patersons Securities director of corporate finance Alex Passmore saw a good deal of light shining through from the far end of the tunnel.
Passmore told the audience that the past 12 months had provided a number of indications that although resources have under-performed on the market they are starting to rebound.
Passmore presented a number of reasons as to why resources equities are not performing as well as they could be.
“One of the main themes we’ve been seeing over the past year is the ongoing cost escalation and productivity issues across the sector,” Passmore said.
“The average cost of gold production in the Australian sector from March 2010 to June 2012 rose from $500 per ounce to over $700 per ounce.
“Some major projects in Australia have been delayed such as Olympic Dam and the Port Hedland Outer Harbour.”
Those of us that manage to take overseas holidays at the moment are enjoying spending their high Australian dollars, however the currency’s sustained strength continues to make offshore projects appear a lot more attractive relative to domestic projects.
Be that as it may there has been a few companies in smaller end of town that have provided some much-needed spark to the small end of the market.
“We’ve had the Nova discovery by Sirius Resources and around five to ten companies near Sirius in the Fraser Range that have benefited from the nearology factor,” Passmore said.
“The Nova discovery has been a great boost to the sector and has shown people that you can still make money by investing in resources.
“More recently Rox Resources has had some interesting hits up near Wiluna, which has also created a bit of excitement.”
Passmore indicated market liquidity continues to be one of the major issues facing many junior company share price ambitions.
He said feedback he had received from potential investors was that they were holding back from entering the smaller end of the market until liquidity improves.
This has made things a bit difficult for the Initial Public Offering (IPO) market with only 36 IPOs listing in the past 12 months: of these 23 have been gold companies, seven coal companies and six copper plays.
The previous year there were 106 IPOs.
“Investors have been very selective by backing companies and Boards with track records and looking for liquidity,” Passmore explained.
“Placements have been the instrument of choice for mid-cap companies.
“There was $6.3 billion raised in the mining sector in 2012, while that sounds like a lot it was actually down quite significantly from just a couple of years ago.
“There is, in fact, a significant amount of money sitting on the sidelines looking for decent investment opportunities, but it is about getting market appeal and differentiating yourself from the pack.
“Some JV deals have also provided interesting funding and companies are starting to be pragmatic in how they fund their projects.”