Richard Morrow, Equity Partner at Baillieu Holst and Chairman of The Melbourne Mining Club is speaking at the Resources Investment Symposium in Broken Hill, May 24 – 27. Richard shared his insights on the pressures currently facing the resources sector, how companies are dealing with it, and why investors should be holding on to their resources stocks and in fact, looking to acquire more.
SYMPOSIUM: What do you see as the biggest challenges in The Australian Resources Sector right now?
RICHARD: The biggest challenge is coping with the excesses of the boom and the inflation in the cost of actually doing business. This is everywhere from construction costs to prices of consumables and more importantly wages and salaries in the sector.
It’s a huge battle for companies to reduce their cost bases and improve their profitability but there are a number of companies that are having great success.
Mining is a boom and bust industry. Companies need to cut their costs to cope with the huge volatility in the sector.
Costs tend to rise quickly and they become embedded. It isn’t easy to control but there comes a time when companies are forced to cut costs but sometimes it’s completely out of their control.
That’s where we are at the moment. Boards and Company Managers basically have a gun to their head to reduce their cost base or perish.
SYMPOSIUM: How is the sector addressing these challenges and how will that ultimately play out for investors in resources stocks?
RICHARD: There’s a cycle to these things. We are seeing the sector bottoming at the moment. It’s not a v-shaped situation – it started to bottom late last year. Not all commodities will bottom at the same time. Gold and base metals are past the bottom. Iron Ore and Bulk commodoties still have a little more pain to go through.
SYMPOSIUM: What are some of the biggest opportunities for investors right now in the resources sector?
RICHARD: The best opportunities are in the mid-sized producers. Companies that are below the radar of the more sophisticated and bigger instiutional investors. They are in the production phase and they’ve been able to cut their costs over the last 2 years. They are taking adavantage of the lower cost base and higher revenues bought about by stronger precious metals and base metals prices in the US and the falling Aussie dollar.
SYMPOSIUM: What should investors in resources stock be doing right now?
RICHARD: I think there are some great opportunies for investors right now. I’d be adding to their portofolio of resources stocks. A great opportunity is BHP splitting in 2, the new company South 32 looks to have very strong world class assets and very strong management. Hold on to what you’ve got and buy a few more.
SYMPOSIUM: What are you hoping to get out of coming to Broken Hill for the Resources Investment Symposium in Broken Hill.
RICHARD: There’s a rich history of mining and mineral processing investment in Broken Hill. I’m hoping to meet and be able to network with companies and executives who operate on the Eastern Seaboard, and not just WA focussed people. There’s a very strong and vibrant mining culture in the Eastern States and Broken Hill is the logical place for those people to come together and discuss the issues that are in front of them and the opportunities that are ahead of us.
The Resources Investment Symposium 2015 is being held in the iconic mining town of Broken Hill, May 24-14. Visit the web site for more information and to register.