A Growing Resources Renaissance
We are in the midst of what is an embryonic resource sector recovery. It's still early days of course, but so far during 2016 we've seen commodity prices rebound strongly from their early-January lows. Gold is so far up by 26%, silver is up 43%, zinc is up 51%, nickel is up 23%, lead is up 13% and crude oil is up 75%. Smaller companies are once again able to raise funding for exploration, appraisal and development work, which in turn has led to greater activity within the resource sector generally. Share prices within the sector are moving once again too (in a positive direction for a change), markets are reacting favourably to good news in company announcements (rather than simply ignoring it) and the better companies are being acknowledged and rewarded (whilst the 'life-stylers' get left behind).
We've also seen smaller companies in many instances outperforming the sector heavyweights. Resource behemoths right across the world have had to live with the consequences of poorly-timed project expansions and expensive corporate deals. This has in turn led to shareholder disaffection and an overall destruction of shareholder wealth. Contrast this with the characteristics of the better-credentialed junior companies within the sector, whose directors typically have significant 'hurt money' invested in their own companies. These companies also tend to have achievable growth strategies in place and tend to be run on the smell of an oily rag. They also tend to be more leveraged to strongly-performing commodities like gold, zinc, lithium and graphite. Nowhere is this better reflected than in the performance of the Australian Small Resources Index.
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