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Miners hoping next boom has
begun
By business reporter Neal Woolrich
7 Jun 2016
PHOTO: A mining truck at the largest open pit gold mine in Kalgoolie, Perth. (David Gray: Reuters)
The mining industry was given another reality check today, with accounting
firm PricewaterhouseCoopers calculating resources firms have written off
$200 billion against their assets' book values over the past five years.
But, despite the gloom around the resources industry, there are signs the next boom
may have started.
Commodity prices have recovered from their February lows, share prices have
surged, and investors are throwing money at previously unloved explorers.
"We've got money in the bank, we've got an active drill program, it looks like we're
getting some good initial results and it doesn't get better than that until you drill the
big one," said Dr Mike Jones, managing director of Impact Minerals, one company
hoping to strike big.
Impact Minerals is a small explorer with projects near Broken Hill and Dubbo that are
showing early promise.
Andrew Forrest, the former chief executive of Fortescue Metals, is a major
shareholder and the company recently raised $1.8 million from investors without
breaking a sweat.
"Our office is in West Perth and there has been a definite change in the walk of
people in the street just over the last two or three months," Dr Jones said.
"Most of us are out there with genuine explorers, we have been struggling to survive
over the last few years, and now money and life is coming back into the business."
Gold miners a standout
The Australian materials index has gained 30 per cent from its February lows, capital
raisings have increased, and companies have been preparing to list on the
Australian Securities Exchange.
"There are several deals which are now in the wings, and the quality of them looks
quite encouraging as well," said Hedley Widdup, a fund manager with Lion Selection
Group who invests in the resources industry.
"They are not just a listing of an explorer, they are listings of things which look quite
reasonable."
Mr Widdup said graphite and lithium have been resources to watch, as they supply
the growing battery industry.
But gold has been the standout, with shares in local producers surging 60 per cent
this year.
"There are a lot of companies, there is a lot of gold which is mined and sold," he
said.
"Gold enjoys fabulous margins at the moment. There are close on 50 per cent
margins in some producers at the moment which is unheard of in a 15-to-20-year
time frame."
Optimism growing, but iron ore, coal still at lows
But Australia's two biggest exports, iron ore and coal, remain in a funk.
While export volumes have increased significantly, prices for both companies and
the underlying commodities look to be stuck near post-boom lows.
"To have a sustainable price rise in iron ore from current levels, given that global
growth is quite subdued, is an unrealistic expectation," said George Boubouras, chief
investment officer at Contango Asset Management.
"So an iron ore price between $45 and $60 seems a quite reasonable broad range."
While optimism is growing, the resources industry is still reeling from the loss of
thousands of jobs as the big miners scaled back their exploration programs.
Impact Minerals' Dr Jones said this is a decision that may bring regret.
"I am sure that over the next couple of years the majors will realise yet again that
they should have kept exploring during the downturn, and will come to the support of
the juniors and look to take over companies that have got promising discoveries."
http://www.abc.net.au/news/2016-06-07/never-say-die-miners-hoping-the-next-boom-hasbegun/7484652