In today’s Money Morning…what the hell is going on?…interesting exploration spend data…except for iron ore, everything else is popping hard…and more…
Yesterday, Ryan Dinse wrote to you about a strong move for the Aussie dollar.
So with all eyes on a battered iron ore price, and the signal on the Aussie dollar, what the hell is going on?
Is mining boom 2.0 off?
Well, I’m here to tell you that mining ain’t dead.
As the AUD is a commodity currency, the move upwards beyond 74 cents is intriguing.
What’s more, I think it’s a sign that we’re seeing the beginnings of a bona fide commodities supercycle.
Talking to Brian Chu of Gold Stock Pro for The Money Morning Podcast last week, he noted that over the next two quarters he expects a number of gold producers, and mining stocks more generally, to feel the pinch from a lack of rigs and labour.
Part of that is down to internal intrastate politics in Australia at the moment regarding border restrictions.
That could mean the market throws up some buying opportunities over the medium term. The long-term picture, however, is pointing to a resurgent speculative wave hitting mining stocks.
Here’s something to keep in mind…
Interesting exploration spend data
Check this out:
Gold exploration spend is going through the roof while the base metals spend is starting to tick up once more after a trough.
Base metals include copper, lead, nickel, tin, aluminium, and zinc.
Exploration spend gives you a grip on where firms think the money is.
We know the gold price is elevated and should remain elevated as central bankers throw the kitchen sink at the world’s problems with loose money.
So gold’s dominance in exploration spend is unsurprising.
Iron ore exploration spend and base metals exploration spend is starting to tick up, however.
Chasing higher prices, you can get more bang for your exploration buck if prices remain high.
Callum Newman of Catalyst Trader, for instance, thinks iron ore stocks present great value as miner margins stay high.
This, even as the headlines on the Australian Financial Review’s website bemoan the seven-month low in the iron ore price:
‘The most-traded iron ore for January delivery on China’s Dalian Commodity Exchange dropped as much as 6.8 per cent to 722 yuan ($US111.88) a tonne, its weakest since February 4, before ending daytime trading at 723 yuan.
‘Imported iron ore stocked at ports in China, the world’s top steel producer, climbed to 131.4 million tonnes last week, the highest since end-April, SteelHome consultancy data showed.’
Greg Canavan on the other hand, our Editorial Director, thinks long term something funky could be up for iron ore as China pivots to Brazilian supply to force the diplomatic point home.
This also coincides with some interesting developments out of China regarding use of their strategic commodity reserves.
High commodity prices hurt Chinese manufacturing and they could feel the squeeze in the coming quarters in a big way.
So there’s diversity of opinion within our editorial ranks — and that’s a good thing.
There’s also the fact that both editors are looking at different time frames, so both can be right too.
Maybe the real story here is that while iron ore grabs all the headlines because of how important it is to the Aussie economy, other metals are going nuts.
Except for iron ore, everything else is popping hard
A few charts to look at coming up.
Nickel is pushing higher once more:
Aluminium is on a serious tear:
Zinc, used to strengthen steel, is still way up despite the iron ore move:
And little-known Neodymium, a rare earth, has snapped its downtrend over the last two months:
Editor’s note: Be sure to check out Australian Small-Cap Investigator if you’re into rare earth stocks, by the way.
Point is, the commodity supercycle ain’t dead, that is, if you’re looking in the right places.
For instance, I really like what’s going on with silver and lead right now, too.
There are heaps of options out there for the savvy investor.
Australia is a literal and figurative gold mine when it comes to mining brain power and expertise located in this country.
Whether that’s geologists, mining executives with buckets of experience, or a finely-tuned operational capability when it comes to labour and rigs — it’s all already here.
I’ll be watching the next set of ABS exploration spend data closely to see what unfolds.
My suspicion: iron ore spend tapers a bit but keeps moving higher as the margins are still great. And base metals — I think they will make a sharp move higher as more mines wake up to how big the opportunity is.
For Money Morning
PS: Lachlann is also the Editorial Analyst at Exponential Stock Investor, a stock tipping newsletter that hunts for promising small-cap stocks. For information on how to subscribe and see what Lachy’s telling subscribers right now, please click here.