Note from the MD: Positive outlook for Australia’s resources sector

It’s great news for Australia that the lynchpin resources sector that underpins our economy is in such rude health and looks set to stay that way for years to come.

It’s great news for Australia that the lynchpin resources sector that underpins our economy is in such rude health and looks set to stay that way for years to come.

Resources exports were up 37% in FY22 at a record $413 billion, and the mining industry now generates around 30% of all company tax in Australia.

Those exports were led by iron ore ($133.9 billion last year), but economists predict coal may be the market’s next source of super profits, thanks in part to an ESG-led lack of new supply globally.

And looking further ahead, increasing demand for other critical minerals is going to drive massive investments across the country.

The International Energy Agency says world consumption of coal this year will match the record levels last seen in 2013, and this together with the global scramble for coal from anywhere but Russia has lifted ASX-listed coal miners to all-time highs recently.

While the longer-term future of coal may be uncertain, new products are stepping up that will help to secure our economic future in a post-carbon world.

Minerals Council of Australia CEO Tania Constable told a Senate inquiry on climate change last week that Labor’s local electric vehicles targets will require a significant upscaling of production of the key minerals used in batteries. These include copper, nickel, cobalt and lithium, of which we are the world’s largest supplier.

The XJO looks to be running out of steam after a second attempt to break above the 50-day moving average in recent weeks. As global bond yields rise on investor expectations of further rate increases, investors are cautious that central banks may be raising at the expense of markets.

The index is down over 2% for the past five trading days and up 2.5% for the month. We are over the halfway point of the earnings season. There has been no shortage of factors or themes affecting earnings results: floods in Eastern Australia, COVID-19, supply-chain challenges, war in Ukraine, higher interest rates, labour shortages, cost pressures, higher inflation and tensions with China.

Reflecting the uncertainties ahead, understandably investors have reacted cautiously to results. More companies have seen their share prices fall on the day of earnings release than those posting gains.

Implied volatility is currently at 14.09% with an IV rank of 23, creating what may be an opportune time to buy protection. Intra-day trading has been volatile, which is pushing up volatility. We currently see the XJO testing the 200-day moving average of 6621, with further support at 6489. Additionally, we see resistance at 7150.

Beyond Australia, the US’s new big-spending climate bill stipulates that battery minerals can only be sourced from either North America or a country (such as Australia) that has a free trade agreement with the US.

For much of 2021, our monthly lithium exports lingered around or below $100 million. But they have exploded since then, hitting a record $1.1 billion in June 2022, up an extraordinary 1,189% from a year ago, and global demand is only expected to build.

Be sure to catch our The Insider: Biotech Special webcast, featuring first-hand insights into oncology, healthcare’s fastest-growing sector, from two CEOs whose companies operate in the US$280 billion industry: Leslie Chong, CEO of Imugene, and Steven Yatomi-Clarke, CEO of Prescient Therapeutics.

Leslie and Steven will be joining us next week, Wednesday 31st August at 12pm (AEST), where they will provide insights into why the oncology industry is effectively recession-proof and how investors can gain exposure to this burgeoning industry. The two CEOs will also discuss the innovative subsections within oncology and the commercial potential of their companies’ work in the field. To join us for this session, click here.

Reach Markets has been engaged by Prescient Therapeutics Limited to assist with their investor communications and may receive fees for its services.

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