Rocks and Stocks: The perfect storm creates the perfect wave

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
13 July 2021, 8:00 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

  • Morgans is pleased to support the Noosa Mining Conference, July 14-16. The conference is into its 11th year with 67 companies presenting in 2021.
  • Market interest in the Juniors has erupted with the surge in commodity prices and investor risk-appetite.
  • Juniors with real prospects, which are still trading beneath-the-radar, can potentially deliver upside measured in multiples of their current value.
  • Noosa is an ideal forum to uncover the next wave of emerging opportunities.

Commodities have roughly doubled in 12 months

A compelling outlook for commodities leverages: 1) strong pent-up demand unlocked by the global economic re-start; 2) constrained mineral supply due to both short-term (pandemic related) and long-term factors (underinvestment); 3) unprecedented and highly accommodative monetary policy and fiscal stimulus driving money supply and activity; and 4) downward pressure on the US dollar.

These are ideal ingredients supporting investor appetite for risk assets, and when combined with growing fears of inflation, actually sees the outlook for commodities enjoying a near perfect storm.

Decarbonisation and the ‘Super-Bull’ case

The pandemic has accelerated the decarbonisation movement driving the change in the ways in which the world generates and uses energy, including the transition to electric vehicles. A Super-Bull case for commodities can be built on the outlook for the “electrification” metals built around copper, and including battery metals nickel, lithium and cobalt.

Recent comments from former Xstrata CEO Mick Davis neatly make the point that “demand isn’t being driven by the industrialisation of another large, populous region (e.g. China), but is being driven by an international social and political consensus, driven by governments, incentives, legislation and penalties to drive this agenda. It’s an agenda that’s going to be driven irrespective of GDP growth”.

This thematic has potential to drive demand beyond what the Chinese phenomenon was, and for a longer period given concerns that the supply side would struggle to meet potential demand.

Juniors still lagging the cycle

Equities are a fashion market and Junior miners are finally enjoying their time in the sun with the ASX Small Resources index surging +30% in the last 12 months. This sounds strong, but comparisons with the boom periods of 2006-2007 and 2010-11 show that market recognition of the Juniors is still at a fraction of its cyclical highs.

Juniors with real prospects, which are still trading beneath investors’ radars, can potentially deliver upside measured in multiples of their current capital value. Stocks Morgans analysts are watching closely in Noosa include Strandline, Stavely Minerals, Mako Gold, Cyprium Metals, State Gas, Mitchell Services and Genex.

Figure 1: Relative performance of large-cap miners versus small-caps/juniors

Growth stocks have had a choppy ride since the onset of the pandemic

Source: Morgans, IRESS

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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