A resource sector renaissance?
The feeling on the street is one of growing optimism. Gold prices have risen by 24% in 2016, silver is up 26%, the market is coming to grips with lithium and graphite ‘booms’, and we’ve seen solid rises of 36% for zinc and 66% for crude oil since their early-January lows. There have also been more modest increases for other metals including copper, lead and nickel. The key driver of course remains Chinese demand, but meaningful supply-side cut-backs are now beginning to have a material impact in stabilising prices.
With respect to equities, poor strategic decision-making and overly-ambitious expansion plans caught out most of the world's heavyweight miners. Contrast this however with the high-quality resource juniors in the sector that we're following. These companies have learned to survive on the smell of an oil rag, executive salaries are modest and geared towards performance, directors often have significant personal stakes (hurt money) in their companies and there are achievable growth strategies in place. Smaller companies tend to be more leveraged to strongly-performing commodities like gold, zinc, lithium and graphite.
Real companies with real projects (not the ‘lifestylers’) are gradually able to raise money and explore again, share prices are moving (in a positive direction for a change) as markets react to good news (rather than ignoring it). And nowhere is this better reflected than in the Australian Small Resources Index.
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