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Presentation - Mining 2014 Resources Convention Brisbane - by Mark Gordon, Senior Resource Analyst.

13/11/2014

 Mark Gordon, Senior Resource Analyst, recently presented at the Mining 2014 Resources Convention in Brisbane, Queensland on 29th October 2014. His full presentation, 'Junior Resources The State of Play or May You Live in Interesting Times', is available for download, and a summary is featured below:

 

Presentation Outline:

 

Breakaway Investment Group / Lime Street Capital Overview

 

What we do...

Breakaway Research:

Commissioned Research, 50+ companies over 3 years and growing.

The Digger - www.breakawaydigger.com, Independent, 'free' newsletter with selected research.  Approximately 30,000 subscribers.

Breakaway Mining Services:

Project evaluation and execution.

Breakaway Private Equity:

Focused on pre-IPO or direct project investments, investigating setting up an overseas strategic metal fund.

 

Juniors - A Brief Introduction

Who are they:

Companies with no (or little) revenue stream to support their exploration activities,largely rely on equity financing to fund exploration activities, ~ 750 listed on the ASX.

Why do we need them?

Committed, motivated explorers, 53% of non-bulk Australian discoveries 1994-2003, 66% 2004-2013.

Challenges:

Tough markets, bureaucracy in some jurisdictions, community activism.

 

20:20 Hindsight  - A Short History of the Cycle or:

The part analysts, forecasters and economists sort of get right, sometimes

The Rise - 2003 to 2007 

Start of the 'Super Cycle' in 2003 - growth in demand from China, sharp increases in commodities prices due to demand increased, in addition to commodity imports, China ramped up domestic production in a number of commodities.

GFC and Recovery - 2007 to 2011

External shock - GFC (2007 - 2009) - truncated the peak, recovery back to the cycle (commencing early 2009).

Fall - 2011 to 2013
Bottoming out - 2013 - are we back to a 'normal' phase?

Most commodities now flat, however we have a structural rise in prices, AUD/USD exchange rate higher than historical.

 

20:0 Foresight - Where to From Here or:

100 analysts, 300 opinions

We are now in a market characterised by largely flat non-bulk commodity prices, which may be expected to continue for some time.

Increase in supply generated during the boom should be able to handle expected demand increased for major commodities for the next few years - note iron ore and coal.

However there is the potential for some minor and strategic commodities to experience significant demand increases/supply contractions.

Investment in the sector now needs to be planned around these factors.

The next market run will be largely due to:

Consistent recoveries in the US and European economies, sustained growth demonstrated by China, pick up growth in other under-developed economies.

Crunch time for a number of juniors - limited cash, limited sources of funding.  Funding for exploration and project development is much tighter than during the boom - only quality projects are likely to get funded.

Companies can still raise funds with the right projects and market exposure - equity raisings completed in 2014 by Breakaway's clients include:

Alligator Energy     Horseshoe Metals     Kibaran Resources     King Island Scheelite     Anova Metals     Auroch Minerals     Sheffield Resources     Emmerson Resources     TNG Limited     Rox Resources     Vital Metals     PLD Corporation     Potash West     Lamboo Resources     Tungsten Mining     Blackham Resources.

Governments and Bureaucracy

Differ widely between jurisdictions, can be overly bureaucratic and inflexible - increasing red (and other coloured) tape leads to delays and additional non-productive costs.

Time is money for juniors - still need to 'keep the lights on' ~$500K to $1m per year for a junior including salaries. Juniors rely on exploration activities and success to boost share price.

Delays in field activities due to statutory requirements can lead to slippage in share price and hence more dilution in equity raising, Some government decisions appear to be based on short term electoral gain, and not long term benefits.

However, overall Australia is a reasonable destination, average Fraser Institute rank of 7 states 22/153, Worst 39/153, best 6/153.

Technical support (e.g. geological surveys, online services) first class throughout Australia, as well as financial support for drilling.

Community Activism

Often ill-considered, poorly informed, emotive.

Vocal minority - unfortunately governments and the general public can seem to listen to and base decisions and viewpoints on these groups.

 

Where Are The Opportunities? or:

Where is the Money to be Made?

There are still good opportunities, finding them requires more due diligence than before - the euphoria and speculation of the boom is well and truly gone.

Only projects with a reasonable chance of discovery or eventual exploitation are getting market attention. 

There have been a number of good stories over the last few years, particularly new discoveries.

Best capital returns are from the exploration stage when a discovery is made. Also returns where funding is approved or offtake agreements (especially for non openly traded commodities) secured.

Commodity price leverage investing not recommended - relatively flat prices now, and forecast to continue.

However potential from 'strategic' metals

Portfolio approach - mitigates risk.

 

Examples of Opportunities/Drivers - Company

New Discoveries

Invest in exploration companies with good technical teams, depending on your risk appetite this can be greenfields or brownfields...

Download the presentation to view in full.

Click here >> to view the article in pdf.




Disclaimer

Analyst Verification

I, Mark Gordon, hereby certify that the views expressed in this presentation accurately reflect my personal views about the subject securities or issuers and no part of analyst compensation is directly or indirectly related to the inclusion of specific recommendations or views in this presentation.

 

Disclosure

Breakaway Investment Group (AFSL 290093) may receive corporate advisory fees, consultancy fees and commissions on sale and purchase of shares of any companies mentioned and may hold direct and indirect shares in those companies.

 

Disclaimer

Any observations, conclusions, deductions, or estimates of figures that have been made by Breakaway Research and the Breakaway Investment Group in this presentation should not be relied upon for investment purposes and the reader should make his or her own investigations. This publication has been issued on the basis that it is only for the information and exclusive use of the particular person to whom it is provided. Any recommendations contained herein are based on a consideration of the securities alone. In preparing such general advice no account was taken of the investment objectives, financial situation and particular needs of a particular person. Before making an investment decision on the basis of this document, investors and prospective investors need to consider, with or without the assistance of a securities adviser, whether the advice is appropriate in light of the particular investment needs, objectives and financial circumstances of the investor or the prospective investor. Although the information contained in this publication has been obtained from sources considered and believed to be both reliable and accurate, no responsibility is accepted for any opinion expressed or for any error or omission that may have occurred therein.

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