Resource Traders: the L Curve is in Play | Australian Markets

1) Mr Market is up to his outdated tips again. Nothing all of us anticipated to occur…is occurring!

Living proof is the large unload we’re due, based on some, due to the Trump tariffs. To date it lasted sooner or later.

Crash? Unlikely.

There’s a recognized downside with this line of pondering.

All of us knew in regards to the potential for tariffs. It was apparent.

The market has already, at all times, priced in what is apparent. It’s the factor you don’t know that may get you into hassle.

I’ve tabled the chance to go long on iron ore with the present dynamic in thoughts over the previous couple of weeks.

To this point iron ore is resilient too. It closed at US$106 per tonne yesterday. FMG is up 7% in latest trade, and able to dump dividends throughout its shareholders again. I’ve picked up a few for the yield in latest weeks.

That stated, iron ore lacks the explosive potential to essentially escape within the short time period, as gold has executed over the past 12 months.

The place else can we glance?

The apparent place to begin is with the copper market. Right here’s useful resource journalist Barry Fitzgerald with the fundamental case…

‘The copper price has been hanging together nicely despite the economic uncertainty that comes when a heavyweight like the US starts imposing tariff walls against friends and foes alike.

‘The red metal is known to be a bellwether of economic activity and so far at least, its $US4/lb-plus price handle says that while uncertainty has increased, the scale of the tariffs will be something much less than originally proposed by the White House on X.

‘Besides, copper it seems, will be OK, in the longer term anyway. The supply pressures coming from falling grades, mine exhaustions, approval delays and a lack of new developments – all at a time when the global electrification effort is in full swing – is an enduring thematic, unlike the politics of the day.’

It’s a acquainted argument. Nonetheless, I associate with it. The arduous half is discovering a approach to play it.

I informed you final week that the large fund managers might go for BHP and Rio Tinto as a result of of their copper publicity.

However they’re much less than ultimate for you and me. They’re so massive it’s arduous to get their price to shift with out massive price strikes in bodily copper and iron ore.

2) To have a shot at a stable return – I’m speaking a likelihood to double your money – we need to toss something else into the combination.

What?

The Lassonde Curve is my favorite concept right here. Are you aware it?

A person named Pierre Lassonde was the founder of one of the primary gold royalty corporations.

30 years in the past, he created a theoretical ‘curve’ to stipulate the life cycle of a junior mining company.

It seems to be like this:

You wish to place in these shares at a sure time for the best likelihood of a fast up transfer.

Clearly, the largest and riskiest part is the exploration part — you’re at all times dancing with the gods on that one.

The second and ultimate part to place for a robust up transfer is as a project ‘derisks’ within the eyes of the market towards first manufacturing.

In the event that they hit their milestones to manufacturing, the market will bid up the stock to entry the incoming cashflows.

That is the best half of the ‘Lassonde Curve’, after adjusting for risk.

In my service Australian Small-Cap Investigator, we’ve ridden this with great success earlier than with Bellevue Gold [ASX:BGL] and, final yr, Spartan Assets [ASX:SPR].

I’ve simply really helpful my latest concept to experience the Curve, final month.

Can we get third time fortunate? No ensures, small caps carry a high degree of risk, however the odds look bang on to have a crack.

You may get the story, together with the identify and ticker, by clicking on this hyperlink. You don’t must subscribe or pay for something.

Be happy to let me know what you suppose of the concept.

3) One closing factor to suppose on in terms of copper.

Analyst David Goldman factors out that gold broke out of the final steel complicated over the previous couple of years.

See for your self…

That is the market transferring to guard itself from the final heightened degree of systematic risk. Bodily gold is a arduous asset, with no counterparty risk.

So is copper. It simply doesn’t have the identical golden glamour. Sooner or later, it’s simple to envisage a situation much like the years earlier than 2008…the place commodities have been seen as a hedge in opposition to different asset lessons.

In different phrases, I anticipate copper and the opposite metals to observe gold greater within the years forward.

Greatest needs,

Callum Newman,
Editor, Small-Cap Methods and Australian Small-Cap Investigator

All advice is normal advice and has not taken under consideration your personal circumstances.

Please search unbiased financial advice relating to your own state of affairs, or if unsure in regards to the suitability of an investment.

Callum’s Premium Subscriptions