Junior Exploration Rise Supported by Global Commodity Demand

THE CONFERENCE CALLER: The recent rise in activity for junior resource companies is directly proportional to the rise in investment cash flowing towards the sector.

Austex Mining executive director Rob Murdoch provided the wakeup call for the second day audience at Brisbane mining 2017 with results of research that showed there to be, on average, around $700 million every quarter available for the junior resource market.

“That’s what the financial capital world will put up for projects, and of course companies have to fight for that money,” Murdoch said.

Murdoch explained that due to a spike in the average share price for junior resource companies back in 2016, companies could raise cash more readily

This resulted in an increase in Q2 this year where companies have been able to raise about $800 million.

The momentum has kicked on into Q3 with some substantial raisings currently underway.

This has led to an increase in exploration spending this year with companies committing to spend around the $400 million mark.

“The estimates companies make are amazingly accurate so they have a pretty good judge, overall, of what they are going to spend over the next quarter,” Murdoch said.

Murdoch’s rise in exploration thesis garnered some support in the late afternoon session when CRU Group associate consultant Dr Allan Trench declared we are currently seeing, “the return of the exploration IPO and the majors even are talking about exploration – something that hasn’t been on the agenda for the past five years”

“There is definitely a rising tide out there in the exploration world,”

Trench supported this ideal with facts and figures indicating a rise – albeit small – in market growth, in terms of overall GDP.

“Only 12 months ago we were talking about the new mediocre,” he said.

“It may not feel like it, but things are actually outperforming expectations by a few fractions of a per cent in terms of global GDP growth this year versus last.

“That’s part of what is driving the actual uptick in what we’re seeing and what we’re forecasting going forward.

China, he said, has borne the responsibility of setting metal consumption rates, but now the rest of the world is beginning to pull its weight in that area.

Price growth and volume growth in terms of billions of dollars in value from 2016 to 2017 has been substantial.

Trench said that’s why, hopefully, and we are already seeing it, company share prices should be on the rise for those exposed to the right commodity.

Zinc is a $37 billion market and prices have recently jumped up to the $3000 per tonne mark.

The current outlook for zinc is that the world will continue to require production as demand outstrips supply.

Trench described the copper market as being “Interesting”, due mainly to the lack of global stocks taking it into the realms of “a real scarcity”.

“There may be hidden stocks that are coming out, people do all sorts of tricks with stocks, of course – hold metal off exchanges – but nevertheless, copper is looking very exciting.”

Apart from the graphite and lithium that goes into an electric car it also requires four times the copper of regular cars.

Trench said it appears analysts have “got it right” and the uptick in the market is happening declaring there to be, “a large uptick still to come”.

Nickel isn’t as scarce as the likes of copper at present and as such, the market isn’t as capricious as it can be.

“Nickel has been amazingly boring,” Trench said.

“Nickel is usually exceptionally volatile, but it has been relatively boring.”

Trench explained that gold had become one of the toughest commodities to forecast.

He provided three reasons for this difficulty being that analysts were uncertain whether the current pricing for gold was a US Interest Rates Story, a China-Demand Side Story, or a Global Uncertainties Story.

Trench demonstrated that CRU has gold remaining relatively flat in US dollar terms.

“To put that into context – the Australian dollar gold price is around $1650 per ounce – approx.  US$1300,” he continued.

“The median cost of production on an all in sustaining cost basis in Australia is around $1100

“So, there is a five hundred dollar margin there.

“If gold prices stay where they are right now, in Australian dollar terms, people are making a great deal of money in gold.”