Australia is one of the most resource rich countries in the world. Based on data at the end of 2021 from the Geoscience Australia website, we boast the largest gold, iron ore, lead, titanium oxide, nickel, uranium, zinc and zirconium reserves.
Our agricultural sector has also been another jewel in our crown as we export our beef, lamb, wool, wheat and other produce worldwide. In fact, Australia was once the world’s richest nation at the turn of the 20th century along with Argentina, thanks to our wool exports.
However, those invested in these vast riches have experienced mixed fortunes these past two years. Central banks seeking to keep interest rates high have put a speed bump on a global recovery.
During this time, astute overseas investors have seized on this opportunity to grab our assets on the cheap.
Going forward, Australia’s role in providing for the world’s resources needs will put us at a major crossroad regarding whom we form strategic alliances in trade, military defence and foreign relations.
This is because the global order is starting to shift and there’re clear signs to show that Australia will need to make tough decisions on which countries we will align with.
Right now, it seems decisions are made by merely looking at the price tag.
This could haunt us in the future, especially when countries hostile to us own key assets and therefore jeopardise our national security.
Our government (regardless of which major party is in power) and regulators need to consider more deeply these implications before approving sales of our valuable assets to foreign bidders going forward.
But whether they are willing or able to do this, I believe that this presents you with a great opportunity to position yourself to benefit from what is unfolding in the future.
Overseas buyers on a shopping spree
Foreign investors have moved in a big way on the prime cuts of our resource riches these few months.
Let me name a few.
In February, Australia’s largest gold producer, Newcrest Mining [ASX:NCM], received a AU$24.5 billion bid from the world’s largest player in this space, Newmont Mining Corporation [NYSE:NEM] to create a behemoth operator.
This offer was sweetened in May to value Newcrest at almost AU$30 billion.
Last Friday, shareholders overwhelmingly approved the scheme and by the end of the month, the combined group will trade primarily on the New York Stock Exchange and the Toronto Stock Exchange. Australian shareholders can also trade Newmont shares on the ASX.
A month later, Canadian-based fund manager Brookfield Partners and its partner MidOcean launched a bid on Australian oil and gas producer and energy generating giant Origin Energy [ASX:ORG] for AU$15.3 billion.
After months of negotiations, the price increased to AU$18.7 billion. This transaction is set to proceed now that our consumer protection watchdog, the Australian Competition and Consumer Commission (ACCC) has given its approval.
This sale will lead to Australia’s energy retailers having an even larger foreign ownership. AGL Energy [ASX:AGL] will be the only major Australian owned company in this space. The third major retailer, EnergyAustralia, is owned by Hong Kong’s CLP Holdings [HKG:0002].
And in July, US-based private equity firm Paine Schawartz Partners launched an initial non-binding bid for the largest fruit and vegetables giant, Costa Group Holdings [ASX:CGC] that valued the company at around AU$1.6 billion. This follows from last October when Paine Schwartz Partners took a significant stake in Costa Group and indicated its interest in taking a seat at the board. After conducting due diligence on the company, it submitted a revised binding proposal that downgraded its value to around AU$1.5 billion.
There’ll no doubt be more purchases, especially as smaller mining companies are announcing discoveries of gold, copper, iron ore, nickel, oil, gas and critical minerals for the coming energy transition.
This is especially the case as small-cap companies are unloved and trading at a deep discount. I’ll come back to this later in the article.
Recent geopolitical upheavals signal a major transition in the world order
We’ve seen in the past week another humanitarian crisis developing in the conflict between Israel and Palestine.
While this is happening the two countries’ respective allies exchanged threats of military action and economic sanctions to lean into this conflict. This is another proxy war just like between Russia and NATO in Ukraine.
The tension we’re watching arises from the major powers forcing smaller countries in different regions to take sides either with the Western nations or the growing bloc of dissenting nations.
Since the Second World War, we’ve seen the US dominate the global stage in driving trade and geopolitics. Nations fell in line with the US or risked poverty and internal unrest for refusing to comply.
This world order also caused trade and logistical bottlenecks coming from free-trade agreements that led to multinational corporations working against the interest of its host nations. We’ve seen the aftermath from the lockdowns and border closures that cripped global and local supply chains.
These are the major symptoms of a unipolar world order at its worst.
But recently, the rise of BRICS and populist governments in the Western nations has tipped the balance against the existing global order.
Also, we’ll likely see regional trade blocs play a bigger role to help countries reset the status quo.
The scandals and blunders coming out of the Biden administration in the US and the economic decline of the Western nations from being consumer economies are speeding up this change.
But don’t expect BRICS to replace the US hegemony…that’s unlikely to happen. It’ll remain a major competitor.
Make no mistake, the US may’ve weakened in the last decade due to internal division, economic decay and military setbacks but it remains the most powerful nation.
And Australia? I think many countries and trading blocs will queue up to do trade with us…but only if we have enough domestic owned assets to bargain with them. Otherwise, we’ll end up as price takers while countries carve us up and put us on sale.
Getting ahead of the major shift in the volatility and weak market sentiment
There’s a lot to get your head around in today’s article.
I hope that our political and business leaders are taking these issues to heart more now that the people here have shown them that they need to realign their priorities. The results of The Voice Referendum over the weekend were loud and clear.
Australia will be a pivotal player in the global stage in the future as countries realign their allegiances and partnerships.
Right now, investors are held down by rising living costs. However, when the central banks fold on their stance to fight inflation and lean to the winds of inflation, commodities could have a major bull market that could dwarf what we saw in 2005–13.
If you’re already invested in this space and are feeling the pain, hang in there. There’re better days ahead.
And if you’re not, then you’re in luck. We have the resources to get you started.
You can start your gold investing journey with my introductory advisory The Australian Gold Report, which has a core gold investment portfolio you can find opportunities from.
Alternatively, my colleague James Cooper has a mining and commodities service, Diggers and Drillers, which focuses on the broad range of commodities Australia is full of.
God bless,
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Brian Chu,
Editor, Fat Tail Commodities
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