THE CONFERENCE CALLER: From an equity market perspective, compared to previous years, 2016 has been reasonably kind to the resources industry.
Opening the 2016 Low Emissions and Technology Minerals Conference in Perth, Argonaut analyst, metals, mining & energy research Matthew Keane identified the performance of small resources equities to have improved during the current calendar year.
He described the performance of small resources to have been, “relatively lacklustre over the past three years,” adding that had anybody invested money in 2014, they would have ended that year basically even.
This year things have been pleasingly different with a revival lead by commodities that are traditional favourites and some new kids on the block creating renewed interest.
“Of course the stand out has been gold, which has had a massive run,” Keane said.
“A snapshot of 2016 shows gold still strong again being the highest performer in the sector, but small resources are up 65 per cent, which is a really fantastic result.”
Keane put this down to the impression that resources had managed to drop off a lot of the perceived risk that has haunted the sector since the GFC, and that there was evidence of money returning to the junior space of the resources industry.
“This is also reflected in terms of the money that we have been able to raise in the sector,” he said.
“This year, to date, we have raised $2.6 billion in terms of Equity Offerings and that is up from the previous year of $2.2 billion.
“Almost half of that money has been raised in the gold sector, but there has also been a substantial amount of money in the lithium sector, for example, Pilbara Minerals raising $100 million and Syrah Resources in the graphite space raising $194 million mid-year.”
Although there has been a renaissance in M&A activity this has been mostly generated in the lithium sector with uranium and rare earths lagging somewhat due mainly to low prices.
“M& A activity has been lacklustre in the uranium space, except for one major transaction in Canada,’ Keane explained.
“In terms of actual transactions done this year, we are down quite significantly, and I think that is an obvious reflection of just where we are in the cycle.”
Fortunately for those investors who were first movers into the lithium crusade there has been some affirmative action within its sphere.
“In terms of transactions a very high number of companies claiming to have a lithium deposit and that is reflected by a lot of transactions at the asset level as well as the equity level,” Keane said.
“There has been a phenomenal rise in the lithium price over the past 18 months – even though it has dropped back slightly in recent months.
“This is a reflection of it being a new growth commodity for electric vehicles and batteries.”
Keane indicated that many analysts are predicting the lithium price is likely to be a price bubble, but he questioned how much bigger can that bubble grow?
Lithium, he said, is not rare, however the amount of global defined Resources are just catching-up to demand.
The growth of the electric vehicle market is often quoted as being the main game for lithium, but Keane suggested the higher demand will come from technological advancements from Germany and China.