Investment Tips for Resources Investors

Hedley Widdup, Executive Director, Lion

Hedley Widdup is a keynote speaker at The Resources Investment Symposium in Broken Hill this May.  Hedley’s presentations are always highly rated amongst attendees and we expect this year to be no different.  Hedley shares his insights on the Resources Industry challenges, opportunities for investors and why he keeps coming back to Broken Hill.

SYMPOSIUM: What do you see as the biggest challenges in The Australian Resources Sector right now?

HEDLEY: The biggest challenges in Australia but mimicked globally are:

1. Funding is difficult to find particularly on equity. Whilst Resources companies can get access to debt, the small market caps are finding it difficult to raise the equity they need to then draw debt.  The pool of junior companies that can raise money is small – need to demonstrate a tangible project, and the willingness and capability to progress.

2. Commodity price uncertainty – In the major companies we are seeing unusual pricing of what the forward commodity price is going to be.  In some spaces we see commodities priced as if they will recover and in others it’s as if they will remain depressed.

Investors are uncertain as they are seeing volatility around commodity prices, investors are just not sure where to put their money.

3. Costs.   Resource investments are competing again with the broader market  on the basis of yield, stocks such as Property, Banks, Woolworths, Facebook.  Growth investors have gone elsewhere and yield investors have put their money elsewhere anyway.

SYMPOSIUM: How is the sector addressing these challenges and how will that ultimately play out for investors in resources stocks?

HEDLEY: The thing that the sector has the most control of is costs.  They’ve been lucky in a few aspects:

  • Steel prices are down
  • Fuel prices are down
  • Labour costs are down, although there is a degree of inertia in capturing the labour costs savings on offer.

For investors, margins in a lot of producers have improved, for example, in Gold.  This hasn’t yet played out in a shift of investor interest.  For investors who are still invested, these improved margins gives them confidence that their stocks are worth holding.  Cost discipline has led to profitability.  It should mean that their investment is stable and safe.

For companies to be able to show that they will responsibly reinvest profits is a good thing for investors, otherwise dividends would be well received too.

SYMPOSIUM: What are some of the biggest opportunities for investors right now in the resources sector?

HEDLEY: Assets companies in the mining space are cheap.  The deals that are being done between companies tells us this.  The opportunity is to accumulate some mining investments.  However, The once in a cycle low prices we are seeing now need to be grasped with an understanding of the risk they come with.

SYMPOSIUM: What should investors in resources stock be doing right now?

HEDLEY: I think the best things that they should be doing is trying to understand the risks where ever they perceive there’s value.  Don’t dive in – understand what it is that they are buying.  They should be seeking an understanding of:

1.  Is there a project ?  It’s not a time to be speculating on the outcome of exploration.  There’s enough to choose from to be able to say is that a project or not.

2.  Do they think the project can be funded from a retail shareholders funders point of view.  For example, if you can see a reasonable project and the company is capitalised for $20million and they are raising $10million that seems reasonable.  If the same sized company needed to raise $100m it’s going to be a lot harder.

3.  What commodity prices the project is going to work at.  If it works at the moment with on the spot prices it’s probably worth it.  If it requires a doubling in prices – it’s probably worth watching for a while.

SYMPOSIUM: What are you hoping to get out of coming to Broken Hill for the Resources Investment Symposium in Broken Hill.

HEDLEY: There are loads of people that I’ve already arranged to catch up with there.  There’s a few delegates who go to Broken Hill who don’t get to the other conferences.  It’s to network and gossip as much as it is to talk about prospects and projects.  As a speaker I’ve always found that after I’ve presented, there are loads of people that want to come and talk and share ideas.  The crowd in Broken Hill is engaged, enthusiastic and cerebral.  As a participant I’ve enjoyed the variety of talks there – it’s a lot different to seeing companies present to other companies.  There’s companies and lots of other interesting topics along the way.

The Resources Investment Symposium is being held in Broken Hill 24 – 27 May 2015.  For more information visit the web site.