Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 238

Small and mid-cap resources review 2018

(This introduction is an edited extract from the longer research book attached at the end of the article).

How did 2017 stack up?

How times have changed since the end of the resources bust. The market began to turn at the beginning of 2016, and we have seen significant gains in all sectors and metals, as shown in the following table. The figures show strong performance across most market sectors and individual commodities over the last two years.

The resurgence is largely in response to an improving global economy, which fared better than expected in 2017, and is expected by some to carry into 2018. However, given that the Chinese economy is maturing, it is unlikely to repeat the rapid growth that characterised the early to late 2000s which led to the previous 'super cycle'.

2017 was an excellent year for the resources sector, building on the solid foundations achieved in 2016. I recall my first 121 Conference in London in early 2016 where a panel discussion suggested that, given the prevailing environment, some junior explorers should be privatised, much to the disgust of at least one managing director of a listed junior miner.

The headline story of the 2017 year was the battery metals, particularly lithium and cobalt. These have been driven by the expected growth in demand for rechargeable batteries, particularly for electric vehicles. Although it has not performed as well, graphite has held its own. We would expect interest in these commodities to continue, but with some flattening and consolidation.

We have noticed in the current cycle that most companies seem to be better quality than in the exuberance of the last boom. This is largely due to shareholders (many who were burnt in the bust) demanding more cost and project management discipline from company management. Many companies have a good product to sell and are run by quality personnel.

Due to the rejuvenation in the junior miner sector, quality smaller companies are once again able to raise funding for exploration, appraisal and development activities, markets are reacting positively to favourable company news, and share prices are continuing to move in the right direction.

Smaller companies, in contrast to the majors, boast management with significant ‘hurt money’ invested, meaning they are often run on the smell of an oily rag. Smaller independent resource companies are also much more leveraged to the strongly-performing commodities of 2016/2017.

What’s in store for 2018?

The resource space in 2018 will be volatile, but amid an overall improving tone in demand and supply fundamentals. One of the biggest drivers in sentiment early in 2017 was ‘The Trump Effect’. There was a lot of near-term enthusiasm in commodity markets as speculators gambled on an infrastructure-led spending spree, but it was largely overblown. The biggest factor in the resource sector remains China, easily the largest consumer of commodities in the world economy.

Our view is that the key mainstream commodities are the base metals, and in particular nickel, which is showing signs of life, with the battery resources also in the mix. Interestingly, the world’s major mining houses have relatively little exposure to the minor metals and are still heavily reliant on iron ore, coal and copper for the bulk of their earnings. We expect the gains in bulk commodities like iron ore and coal to subside, as supply is abundant and there have been temporary factors within China that have sucked in imports and supported price increases.

Australian miners should continue to benefit from strong commodity prices in A$ terms. Overall, we expect the strength in the sector to continue into 2018 due to our forecasts for strong metals prices, driven by a relatively healthy global economy.

 

Mark Gordon is Senior Analyst at Independent Investment Research. Gavin Wendt is the Founder of MineLife and the Senior Resource Analyst. These comments are general in nature and do not consider the circumstances of any investor.

The full Independent Investment Research - Small and Mid-Cap Resources January 2018 Review (including specific comments on many junior resource companies) can be accessed by clicking the image below. The purpose of this research book is to present a diverse group of resource companies worthy of further consideration.

  •   2 February 2018
  •      
  •   

 

Leave a Comment:

banner

Most viewed in recent weeks

Warren Buffett's final lesson

I’ve long seen Buffett as a flawed genius: a great investor though a man with shortcomings. With his final letter to Berkshire shareholders, I reflect on how my views of Buffett have changed and the legacy he leaves.

The housing market is heading into choppy waters

With rates on hold and housing demand strong, lenders are pushing boundaries. As risky products return, borrowers should be cautious and not let clever marketing cloud their judgment.

Why it’s time to ditch the retirement journey

Retirement isn’t a clean financial arc. Income shocks, health costs and family pressures hit at random, exposing the limits of age-based planning and the myth of a predictable “retirement journey".

Australia's retirement system works brilliantly for some - but not all

The superannuation system has succeeded brilliantly at what it was designed to do: accumulate wealth during working lives. The next challenge is meeting members’ diverse needs in retirement. 

The 3 biggest residential property myths

I am a professional real estate investor who hears a lot of opinions rather than facts from so-called experts on the topic of property. Here are the largest myths when it comes to Australia’s biggest asset class.

Welcome to Firstlinks Edition 637 with weekend update

What should you do if you think this market is grossly overvalued? While it’s impossible to predict the future, it is possible to prepare, and here are three tips on how to best construct your portfolio for what’s ahead.

  • 13 November 2025

Latest Updates

Investment strategies

Australian stocks will crush housing over the next decade, 2025 edition

Two years ago, I wrote an article suggesting that the odds favoured ASX shares easily outperforming residential property over the next decade. Here’s an update on where things stand today.

Property versus shares - a practical guide for investors

I’ve been comparing property and shares for decades and while both have their place, the differences are stark. When tax, costs, and liquidity are weighed, property looks less compelling than its reputation suggests.

Investment strategies

What if Trump is right?

Trump may be right on two trends: nations are shifting from aspiration to essentials and from global dependence to self-reliance, pushing capital toward security, infrastructure, and energy.

Gold

After a stellar 2025, can gold shine again next year?

Gold has had a remarkable 2025, with the spot price likely to post its strongest return since 1971. This explores the key factors that will shape the outlook for the yellow metal next year, and long-term.

Superannuation

Critics of Commonwealth defined benefit schemes have it wrong

Critics like Clime's John Abernethy have questioned many aspects of defined benefit pensions for public servants. This is an attempted rebuttal, suggesting these pensions aren't the problem they're made out to be.

Infrastructure

Why airport stocks deserve a place in long-term portfolios

Aircraft constraints are holding back global air travel. Those constraints should soon ease which combined with a structural boom in travel demand could be a boon for global airport stocks.

Investment strategies

What is the future of search in the age of AI?

Search is changing fast. AI tools like ChatGPT and Google’s Gemini are reshaping how we find information, opening new opportunities for innovation, user engagement, and future revenue growth.

Sponsors

Alliances

© 2025 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.