gulfmanganese.com · created date: 6/26/2015 1:28:12 pm
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Catatysing interestback to miningThe condiiions we are seeing now are
the early stages of the nexl boom and we
expect to see growing market interest in
miners albeit only gradually. Whitst market
weight of miners is at cycticat lows, juniors
are abLe to raise money again, IY&A tooks
to be gaining pace and there is a war chest
of PE funds watching from the sidelines,
so il seems there is a shared common
betief by both miners and some seasoned
investors that current valuations present an
opportunity.
lnstitutions that manage large amounts of
money are presentty weighted away from
mining, and this is the tide that needs to
turn before ihere witl be an improvement in
miners trading vatuations and mining equity
indices. A number of conditions are expected
to encourage institutions to begin increasing
wei ghting towards miners:
. Sustained cost improvements /profrtability by miners.
. A [arge rash acquisition by private equity
buyers would be a strong signat to the
market.. Cyctical move out of tech (a competing
risk space).. ln the broader market, an increase in
interest rates would decrease the appeat
of yietd stocks.
The short term chatlenge for institutions,
given many are ctose to futty invested, is
determining what to sett to provide the funds
to invest in mining. The tatter presents the
greater challenge, whitst the broader market
is performing welt there may be a sense of
inertia towards exiting successfut positions.
Large cash takeovers such as the A$58 bid
for Tott Holdings (announced 18 February
20'1 5) may begin this task for portfotio
managers. Any outperformance of miners
coutd be setf-perpetuating, as institutions
look to cover their peers performance.
The improvement in sentiment is stilt
young, and possibly fragile so there remains
risk on the outtook. Recent mining equity
performance has been closely related to
falting commodity prices, many of which
have fatlen through their perceived marginal
cost resistance levels, so further faLls cannol
be discounted. However, having now
come wett off of highs, any f urther falts in
commodities cannot be as [arge and given
the setling of the last three years, mining
equities are now arguabty pricing a degree
of commodity price pessimism. No doubt
there witl be volatility due to commodities
but the growing abundance of value oriented
buyers may limit downside.
The bust that started in 201'l did n0t have
as ctear a catatyst as previous busts, and as
described eartier previous busts have also
been much more rapid - it may be possible
that this bear markei dies of exhaustion and
extreme old age. [ycles turn more gradually
from bust to boom than from boom into
bust. lt's tikely for the upswing catatyst to be
a combination of many smalter factors and
one by one investors decide the worst has
passed, assets are cheap, so they buy again.
The swallows are on the move.
Sentiment has improved since IYay 2014
when the Lion ctock was moved to 4 o'clock.
ln recognition of this progression, the ctock
is now at 4:30. lt is worth noting that s0me
sectors of the market may be out of synch
with the clock which represents the market
as a whole. For example - smatl iron ore
miners are at more tike 1 or 2 o'clock.
Likewise though, PE buyers coutd be the
frrst to think the market requires a cash deaI
(5 o'ctock).
ryilhisll'#pfiflLt,7 Papetlakeouets /,
CRASHCompany liquidations
Peoole leave biocompanies (top $ smaTl
companies short careers)
Rising exploration
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