The once in a century boom for most Australian miners appears to be over although resource houses with good projects should still receive support from the market.
Platypus Asset Management chief investment officer Donald Williams called an end to the boom at a media briefing, pointing to a cooling Chinese demand for raw materials.
“What that tells us is the macro (outlook) for mining is not as good as it’s been for the last three or four years and we think the commodity boom is over for most commodity companies,” Mr Williams said on Monday.
Mr Williams said China’s economy was slowing and may need measures to stimulate growth in the future.
He said Australia had now entered a more normal investing environment and that companies with good projects would receive support from the market.
“Single commodity companies are wasting assets and we think there’ll be very little excitement in those names unless there is some reason that someone else might want to buy them,” Mr Williams said.
“Luckily for Australia our mix of commodity prices are a bit better than the global mix of commodity prices.
“If iron ore starts trading below $100 (per tonne) then the mining boom is really over,” he said.
Mr Williams said capital expenditure in the mining sector had probably peaked and would hopefully plateau over the next five to six years.
“Companies like BHP have, unofficially at least, backtracked on some of their expansion plans.
“As the cost base goes up and commodity prices head the other way, the margin for error for a lot of these very large long-life expansions is shrinking and boards are losing confidence.”
Some Perth-based companies were not taking on more work because they refused to increase wage rates but capital expenditure would remain at a high level, especially among major oil and gas companies, Mr Williams said.
He said that companies such as BHP Billiton and Rio Tinto would remain profitable while iron ore prices stayed high.
Altius Asset management portfolio manager Chris Dickman said China’s growth would continue to underpin the Australian economy, which was undergoing a major restructure to become more mining and less manufacturing focused.
Acorn Capital chief operating officer Douglas Loh said the specialist investment manager was keen on small stocks in the engineering and mining-production sector.
Mr Loh said that in a lot of cases microcap resources companies had received a boost from the capital expenditure of companies like BHP Billiton, Rio Tinto, Fortescue and Woodside Petroleum.
