Hey, this is more fun! Yesterday the Aussie market hit a two-month high.
Hopefully, you didn’t stress out during the recent weakness. You might remember back on 10 May, I suggested a market crash was unlikely.
That was despite the drama over the US debt ceiling, a surprise RBA rate hike and all the other worries out there.
You should be hunting for opportunities. I’ve given you a few ideas on this front.
One of those was battered REIT Abacus Property Group [ASX:ABP]. On 25 May, I said it looked like a good buy in the spirit of the late investor and ‘grave dancer’ Sam Zell.
It was $2.58 on that day. Yesterday, it closed at $2.75 and up by a nifty 6%. Any shareholder is on track for a 7% yield at least.
The intriguing thing about Abacus is that it’s about to split in half and float a second company onto the market. There might be more in it yet.
What else can we get pumped about?
Copper is in the big game right now when it comes to the resource markets. We talked a bit about why that is on 17 May.
Just this morning, Rio Tinto [ASX:RIO] announced that it’s going to invest US$498 million into its American copper mine in Utah.
That’s around $733 million Aussie dollars…that’s not far off $1 billion of shareholder money!
Rio said in its release:
‘Production from the NRS will commence in 2024 and is expected to ramp up over two years, to deliver around 250 thousand tonnes of additional mined copper over the next 10 years alongside open cut operations.’
Hello!
The big mining boys are investing in copper for the years ahead.
That makes a whole lot of sense to me.
BHP CEO Mike Henry said back in May:
‘Copper is one of those commodities that will require a freakishly large number in terms of investment.’
BHP says the number required could be US$250 billion by 2030.
The problem for you, me, and everyone else is that even if this money can be found — and it’s a big IF — the mining industry isn’t clear about where to put it to use.
Richard Adkerson is the CEO of miner Freeport-McMoRan.
The Economist quoted him this year as saying about copper:
‘There is just a scarcity of actionable investment opportunities in the world today.’
You can take the same approach and accumulate copper plays into your portfolio.
You do this in the full knowledge that its whole resource sentiment is a little depressed and the shares look good value.
Don’t let the thought of a possible recession or economic weakness put you off, either.
There may be no higher authority on resource investing than hedge fund legend Jim Rogers. His book Hot Commodities is a classic of the sector.
One of the points he makes in that book is that the ‘economy’ in the abstract is not a deciding factor when it comes to any natural resource.
The 1970s are a perfect example of this. It was a roaring time to be making money in commodities in that decade.
But the economic performance of the US economy — and share market — was largely a dud.
However, what mattered more at the time was the underinvestment in resource development during the ‘50s and ‘60s.
It’s likely we’re looking at a similar setup in the next decade, at least in terms of supply issues.
The really big investors put their money into Facebook, Amazon, Apple, and Microsoft over the last decade.
They couldn’t have cared less about the outlook for copper, or any other resource for that matter.
Why would they when some of the greatest businesses of all time are churning out cash and explosive revenue growth?
However, the world cannot continually run down its known reserves of copper (and oil, iron, etc.) and not reinvest for the future.
We saw how this could play out with coal last year. The investment markets completely turned away from coal, as did banks, at least in the West.
Then we ran into an unexpected energy crisis, and coal prices went through the roof.
Along the way, my colleague Greg Canavan recommended Whitehaven Coal [ASX:WHC], and we all watched as it went up 800% at one point.
800%?
There’s only one sector that can deliver a gain like that in a reasonably short time frame…and that’s the resource market.
For my money, copper is the best shot at pulling off a move like this in the next few years. BHP and Rio Tinto are leading the way here, and I am more than happy to follow in their slipstream.
In my last issue of Australian Small-Cap Investigator, I put down my favourite ASX copper play.
If you’re keen to check it out, get started here.
Join the fun!
Regards,
 |
Callum Newman,
Editor, Money Morning
