Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 238

Small and mid-cap resources review 2018

(This introduction is an edited extract from the longer research book attached at the end of the article).

How did 2017 stack up?

How times have changed since the end of the resources bust. The market began to turn at the beginning of 2016, and we have seen significant gains in all sectors and metals, as shown in the following table. The figures show strong performance across most market sectors and individual commodities over the last two years.

The resurgence is largely in response to an improving global economy, which fared better than expected in 2017, and is expected by some to carry into 2018. However, given that the Chinese economy is maturing, it is unlikely to repeat the rapid growth that characterised the early to late 2000s which led to the previous 'super cycle'.

2017 was an excellent year for the resources sector, building on the solid foundations achieved in 2016. I recall my first 121 Conference in London in early 2016 where a panel discussion suggested that, given the prevailing environment, some junior explorers should be privatised, much to the disgust of at least one managing director of a listed junior miner.

The headline story of the 2017 year was the battery metals, particularly lithium and cobalt. These have been driven by the expected growth in demand for rechargeable batteries, particularly for electric vehicles. Although it has not performed as well, graphite has held its own. We would expect interest in these commodities to continue, but with some flattening and consolidation.

We have noticed in the current cycle that most companies seem to be better quality than in the exuberance of the last boom. This is largely due to shareholders (many who were burnt in the bust) demanding more cost and project management discipline from company management. Many companies have a good product to sell and are run by quality personnel.

Due to the rejuvenation in the junior miner sector, quality smaller companies are once again able to raise funding for exploration, appraisal and development activities, markets are reacting positively to favourable company news, and share prices are continuing to move in the right direction.

Smaller companies, in contrast to the majors, boast management with significant ‘hurt money’ invested, meaning they are often run on the smell of an oily rag. Smaller independent resource companies are also much more leveraged to the strongly-performing commodities of 2016/2017.

What’s in store for 2018?

The resource space in 2018 will be volatile, but amid an overall improving tone in demand and supply fundamentals. One of the biggest drivers in sentiment early in 2017 was ‘The Trump Effect’. There was a lot of near-term enthusiasm in commodity markets as speculators gambled on an infrastructure-led spending spree, but it was largely overblown. The biggest factor in the resource sector remains China, easily the largest consumer of commodities in the world economy.

Our view is that the key mainstream commodities are the base metals, and in particular nickel, which is showing signs of life, with the battery resources also in the mix. Interestingly, the world’s major mining houses have relatively little exposure to the minor metals and are still heavily reliant on iron ore, coal and copper for the bulk of their earnings. We expect the gains in bulk commodities like iron ore and coal to subside, as supply is abundant and there have been temporary factors within China that have sucked in imports and supported price increases.

Australian miners should continue to benefit from strong commodity prices in A$ terms. Overall, we expect the strength in the sector to continue into 2018 due to our forecasts for strong metals prices, driven by a relatively healthy global economy.

 

Mark Gordon is Senior Analyst at Independent Investment Research. Gavin Wendt is the Founder of MineLife and the Senior Resource Analyst. These comments are general in nature and do not consider the circumstances of any investor.

The full Independent Investment Research - Small and Mid-Cap Resources January 2018 Review (including specific comments on many junior resource companies) can be accessed by clicking the image below. The purpose of this research book is to present a diverse group of resource companies worthy of further consideration.


 

Leave a Comment:

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever, updated

This time last year, I highlighted 16 ASX stocks that investors could own indefinitely. One year on, I look at whether there should be any changes to the list of stocks as well as which companies are worth buying now. 

UniSuper’s boss flags a potential correction ahead

The CIO of Australia’s fourth largest super fund by assets, John Pearce, suggests the odds favour a flat year for markets, with the possibility of a correction of 10% or more. However, he’ll use any dip as a buying opportunity.

2025-26 super thresholds – key changes and implications

The ABS recently released figures which are used to determine key superannuation rates and thresholds that will apply from 1 July 2025. This outlines the rates and thresholds that are changing and those that aren’t.  

Is Gen X ready for retirement?

With the arrival of the new year, the first members of ‘Generation X’ turned 60, marking the start of the MTV generation’s collective journey towards retirement. Are Gen Xers and our retirement system ready for the transition?

Why the $5.4 trillion wealth transfer is a generational tragedy

The intergenerational wealth transfer, largely driven by a housing boom, exacerbates economic inequality, stifles productivity, and impedes social mobility. Solutions lie in addressing the housing problem, not taxing wealth.

What Warren Buffett isn’t saying speaks volumes

Warren Buffett's annual shareholder letter has been fixture for avid investors for decades. In his latest letter, Buffett is reticent on many key topics, but his actions rather than words are sending clear signals to investors.

Latest Updates

Investing

Designing a life, with money to spare

Are you living your life by default or by design? It strikes me that many people are doing the former and living according to others’ expectations of them, leading to poor choices including with their finances.

Investment strategies

A closer look at defensive assets for turbulent times

After the recent market slump, it's a good time to brush up on the defensive asset classes – what they are, why hold them, and how they can both deliver on your goals and increase the reliability of your desired outcomes.

Financial planning

Are lifetime income streams the answer or just the easy way out?

Lately, there's been a push by Government for lifetime income streams as a solution to retirement income challenges. We run the numbers on these products to see whether they deliver on what they promise.

Shares

Is it time to buy the Big Four banks?

The stellar run of the major ASX banks last year left many investors scratching their heads. After a recent share price pullback, has value emerged in these banks, or is it best to steer clear of them?

Investment strategies

The useful role that subordinated debt can play in your portfolio

If you’re struggling to replace the hybrid exposure in your portfolio, you’re not alone. Subordinated debt is an option, and here is a guide on what it is and how it can fit into your investment mix.

Shares

Europe is back and small caps there offer significant opportunities

Trump’s moves on tariffs, defence, and Ukraine, have awoken European Governments after a decade of lethargy. European small cap manager, Alantra Asset Management, says it could herald a new era for the continent.

Shares

Lessons from the rise and fall of founder-led companies

Founder-led companies often attract investors due to leaders' personal stakes and long-term vision. But founder presence alone does not guarantee success, and the challenge is to identify which ones will succeed in the long term.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.