By Jim Jones
CAPE TOWN (ResourceInvestor.com) — “It’s dangerous when bankers try to predict the future,” said Mark Tyler, Head of Mining and Resources at Nedbank at this year’s Mining Indaba.
But this opening statement by Tyler did not prevent him from gazing into his crystal ball and to come up with some sobering thoughts on the current minerals boom.
Only a few short years ago, stagnant or declining prices were being built into any projections of commodity investments. In the past to years, Tyler pointed out, metals prices have rocketed and there are grounds to believe that we are in one of those commodity super-cycles driven by real growth and that occur only every half century or so.
This one is based on Chinese and Indian demand, the last one was reconstruction of Europe and Japan after World War II.
But can the current price advances be maintained? Tyler wondered. As it is, commodities firms have used soaring revenues to build strong balance sheets, exploration activity has increased by leaps and bounds and so, too, has M&A activity. However, there is the lack of world class deposits being discovered.
But do we face a China syndrome? Should we be drawing parallels with the dot.com boom and bust? Sentiment, don’t forget, can be highly leveraged. And nothing can defy gravity permanently.
So, Tyler believed, commodity prices will eventually revert to those reflecting more-prosaic supply-demand relationships. Sure, declining commodity prices can have dramatic effects on marginal operators, but they will not destroy the viability of low-cost producers.
He said funds were getting out of stocks and there was too much interest in commodities, therefore driving prices higher.
But as Tyler put it, while equity may come and go there are some certainties in this life: Death, taxes, the poor and enthusiastic investment sentiment. Always try to avoid the first three.
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