The junior mining sector is alive and kicking, even if certain markets remain somewhat sceptical and company chief executives continue with their plaintive cries, forever heard both in bear markets and bull, that their shares are undervalued.
It certainly is true that across the sector share prices aren’t roaring away as they did back in the boom years of 2005 and 2006, but prices are at least now sensitive to newsflow in a way that they weren’t even as recently as 2016.
Take Kogi Iron Ltd (ASX:KFE), for instance. This company languished for many years without a strategy because former management just missed the boat when it came to flipping West African iron ore companies into Chinese ones.
But lo, along came a new regime able to devise a plan to make the key project in Nigeria not only workable, but actually compelling and uniquely positioned in a country crying out for steel. Kogi’s share price hasn’t soared away on the implementation of its new strategy, but it has risen incrementally on each item of positive newsflow, to the point where the shares are now 50% higher than where they were in May.
A different type example is Solgold (LON:SOLG), perhaps a paragon of exploration companies alongside the likes of Aber Diamonds in that it spent years roaming the four corners of the earth for a decent project, and just when everyone was beginning to lose all faith, finally landed such a monster that all the original backers ended up making their money back several tens of times over.
A significant stake in Solgold has just been acquired by BHPBilliton (LON:BLT) the Anglo-Australian major which had already tried and failed once to get a major piece of the Solgold action at the Cascabel copper project in Ecuador. That BHPBilliton, once rebuffed, thought it worthwhile coming round for a second look shows not only how keen the major was originally on Cascabel, but also how keen it is in general to get involved in new projects.
This is a theme that is beginning to become apparent across the board. According to Laurence Read of Europa Metals (LON:EUZ)(ASX:EUZ), the recent Diggers and Dealers mining conference in Kalgoorlie was positively humming with deal-hungry representatives of mining majors. Read runs Bezant Resources (LON:BZT) as well, and was impressed by the level of interest in both his companies.
The impression from Diggers at least is that the mining sector is now about as busy and as investable as it has been at any time since the great mining boom of the previous decade.
What’s driving that boom is of course the global economy itself, well on course for growth of at least 3% this year, notwithstanding the headwinds of pending trade wars and emerging market currency crises.
This growth is in large part driven by the US, of course, which took its time emerging from the throes of the global financial crisis, but which now that it’s back, is firing on all cylinders.
Naturally enough the politicians in charge are taking the credit for this stellar growth, which at the present time, given Mr Trump is in office has allowed for much denigrating of earlier opponents. The seeds of the recovery were actually sown by Janet Yellen and President Obama, of course, but that’s another story.
We have growth, and America is again astride the world stage bursting with economic confidence, even if the politics is sending out mixed messages. Will Mr Trump’s tariff policies pay off? They may well do, Mexico is already back in the fold, talks with Canada are ongoing, the Chinese are being given pause for thought by slowing growth rates, and even the Germans are beginning to take heed, given that car export numbers have now fallen so dramatically.
But even if Mr Trump’s tariff gambit does fail, the global growth cycle will still continue on its course, just, perhaps, with slightly less lustre.
This ongoing growth will in turn drive demand for metals, which is why BHPBilliton is interested in Solgold, why the Nigerians will be interested in new sources of steel from Kogi, and why delegates were kept so busy at Diggers and Dealers this year.
Not every company is enjoying the benefits of a rising share price. At the moment, it’s still a stock-pickers market. And that’s all to the good. When the time comes for all boats to rise, we may well be approaching bubble territory. But we’re not there yet, and there’s a lot of good business to be done between now and then.