Australian Resource Players Gearing Up to Maintain Commodity Equilibrium

  • Nov 06, 2019 AEDT
  • Team Kalkine
Australian Resource Players Gearing Up to Maintain Commodity Equilibrium

The Australian resource sector has shown promising growth in the past couple of years with multifactor productivity improvement since the industry transitioned into the production phase. The increase in mining activities, coupled with improved productivity, has led Australia to lead the global front in the resource sector.

Australia’s worldwide share of iron ore surged from 33 per cent to 52 per cent between 2001 to 2018; likewise, the global share for metallurgical coal surged from 54 per cent in 2001 to reach 61 per cent in 2016.

Apart from the mining activities, the resources sector of Australia is also leading the global frontier in innovation with an introduction of a self-driving fleet. Rio Tinto (ASX: RIO) uses the world’s largest self-driving train for haulage activities.

Majority of the Australian miners are now in the production phase and are also assessing the expansion plans amid improved commodity prices in the international market.

To Know More, Do Read: Australia Vs Chile- A Race for the Lithium Crown

The entry into the production phase has prompted many ASX mining companies to expand the projects to leap with the change in the global economic conditions, which hold a positive correlation with the commodity prices in the market.

To know more, do read our guide on commodity valuation and mining stock (click here !!)

While the global economic conditions have started showing some positive signs post the phase one of the negotiation deal between the United States and China, the ASX miners are gearing up to balance the supply chain corresponding to the global demand for commodities.

ASX listed Mining Stocks

Mining stocks act as a decent alternative to park investment in the commodities, which are highly sought after by the investors for diversification and return enhancement, amid their direct exposure into commodity markets.

Some of the mining stocks, which recently remained in the spotlight amid certain reasons are as below:

Aurelia Metals Limited (ASX: AMI)

AMI is an ASX-listed mid-tier gold and base metals such as copper, lead, zinc, etc., producer, and the company owns and operates its fully-owned Hera and Peak mines in Central West of New South Wales.

The core strategy of the company includes:

  • Optimisation of the existing operations by increasing the development rates and upgrading the lead/zinc circuit. AMI is also focused on the mine life extension for its Hera mines.
  • Focus on returns by aiming at the right commodity to prefer margin over value, which as per the mining giant- Rio would be the key to success over the long-run.

To Know More, Do Read: Big may not Necessarily be Beautiful and Sustainability Is About Partnership- ASX Giant Rio

  • Utilising and leveraging on the extensive underground and surface infrastructure is among the core strategy of the company to achieve the near-mine drilling. AMI intends to identify new high NSR (or Nitrogen Oxide Storage Reduction) materials and extend the operating lives of the assets.
  • Focus on regional exploration to deliver a major mine with exceptional prospectivity.

The declining ore grades in Australia amid a production boom across various commodities require heavy investment plans for the extension of the operating projects and their growth.

During the second half of the calendar year 2019, AMI witnessed a significant investment in the business to achieve Peak plant upgrade, underground development and access to Kairos, and as per the company, the investment would deliver higher Peak throughput and lower unit costs from the first half of the calendar year 2020.

AMI recently came into the limelight post, presenting the outlook for the years ahead.

Outlook Ahead

In FY20, AMI anticipates higher base metals output and lower gold production with gold production standing at 85-95k ounces against the FY19 production of 118k ounces. For base metals, the company anticipates production as below:

Aurelia Metals Limited company report

(Source: Company’s Report)

The company also presented its view over FY21, which is as below:

AMI anticipates the annual throughput at the Peak mines would reach the nameplate capacity of 800k tonnes per annum.

The accelerated underground development is estimated by the company to deliver access to the base of Kairos towards the end of FY20, which further holds potential for prioritisation and mining of high margin tonnes from Kairos in FY21.

The growth capital expenditure is predicted by the company to reduce sharply in FY21 post the expected completion of the Peak lead/zinc upgrade in 3Q FY20.

The stock of the company surged on ASX from the level of $0.400 (Day’s low on 22 October 2019) to the present high of $0.527 (as on 6 November 2019).

Apart from AMI, other resources stock that came under limelight on ASX includes Tribune Resources Limited (ASX: TBR) and West African Resources Limited (ASX: WAF) post reporting their quarterly performance.

After a fall from the level of $8.800 (Day’s high on 25 October 2019) to the level of $7.470 (Day’s low on 5 November 2019), TBR rose to the present high of $7.990 on 6 November 2019.

However, WAF followed a counter path, and post rising from the level of $0.405 (Day’s low on 15 October 2019) to the level of $0.515 (Day’s high on 4 November 2019), the stock plunged to the present low of $0.465.

While the resource sector is gearing up, the service providers to the mining industry are also catching the investors attention, and the stocks of mining service providers are also coming into the spotlight.

ASX-listed Mining Service Providers

Macmahon Holdings Limited (ASX: MAH)- an ASX listed mining service provider. The company inked an agreement with the low-cost gold miner Newcrest Mining Limited (ASX: NCM) over the increased rates for the company for its work at the Telfer gold project.

Macmahon anticipates that the agreement would make the Telfer contract to be cash flow positive over its remaining term.

The company also reiterated its FY20 guidance and mentioned, that the revenue in FY20 would be in the range of $1.2 to $1.3 billion with an EBIT between $80 to $90 million.

The stock of the company rose from the level of $0.180 (Day’s low on 17 October 2019) to the present high of $0.220 (as on 6 November 2019).

Imdex Limited (ASX: IMD) another ASX-listed mining service provider gained momentum in the recent days, and the share prices of the company surged from the level of $1.265 (Day’s low on 4 October 2019) to the level of $1.645 (Day’s high on 4 November 2019), which in turn, marked a price increase of over 30 per cent.

However, the stock took a slight correction from the level of $1.645 to the present low of $1.520 (as on 6 November 2019).

To summarise, the mining activities in Australia has entered the production phase and coupled with a slight improvement in the global economic conditions post the phase one of the trade deal; it is prompting the resources players like AMI to gear up to balance the demand and supply dynamics for commodities over the years ahead.

While the ASX mining companies are gearing up, the mining service providers are also gaining the attention amid the interlinking of business between both the segments of the resource sectors.


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