Transcription of Finance News Network Interview with Resource Analyst, David Lennox Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me is Resource Analyst, David Lennox. David, welcome to FNN.
David Lennox: It’s good to join you as well.
Lelde Smits: You’ve been researching Australian equities with a focus on mining for more than 30 years. But, with headlines last year heralding the end of the mining boom what’s your outlook for the sector this year?
David Lennox: There is no doubt that when you have a look at the pricing we’ve certainly seen prices come down from their record highs. But, what we haven’t seen certainly at the start of this year is that prices collapse. Prices have been fairly stable now for probably a few months. And again, that’s an indication that when you’re looking at the market participants they’re very comfortable going forward that the demand supply equation is very much still in favour of demand.
Lelde Smits: Australia’s largest trading partner is China. What was your response to nation’s latest GDP [Gross Domestic Product] figures and where do you see Chinese growth trending this year?
David Lennox: We were very pleased with the result. You have a look at the 7.8 per cent annual growth that came in for the December year end [2012], that is an indication that China has finally started to reverse the trend that we saw throughout 2012, with their economy slowing. And, if you have a look at forecasts now with 2013 – the real key is that the market’s are expecting China to grow somewhere between 8-8.5 per cent for 2013. That’s a real bonus for commodities.
Lelde Smits: Looking closer at commodities – Which commodities are you most bullish about this year?
David Lennox: We do certainly think that if you had to highlight one we would be highlighting iron ore. We do think that if you have a look at the investment scope for iron ore through 2013 that it looks very, very robust in terms of pricing. And in fact, we set a price now back some few months ago for 2013 between $US130-140 a tonne and already iron ore is trading today at about $US145 a tonne
. Lelde Smits: OK David,let’s look at some iron ore producers and exporters then - BHP Billiton Limited
(ASX:BHP), Rio Tinto Limited
(ASX:RIO) and Fortescue Metals Group Limited
(ASX:FMG) have just released production reports: On the whole, where they better or worse than you had been expected?
David Lennox: We think the reports were actually very good. They were actually probably a little better than we had been expecting. When you have a look at both BHP Billiton Limited
(ASX:BHP), Rio Tinto Limited
(ASX:RIO), they both reported record production numbers in their key commodity of iron ore. And, Fortescue Metals Group Limited
(ASX:FMG)obviously being a very new company is producing records as the months roll on as well. So, we were very pleased with results. And, we think that when you add our price outlook with their production increases they’re planning through 2013/14 and the years ahead, we think that these particular companies are well placed to enjoy the long life we see in iron ore for some years to come.
Lelde Smits: Could you give us an idea of a stock that might be undervalued?
David Lennox: One of the small capped stocks that we think is undervalued at this particular point in time is a company called Azure Minerals Limited
(ASX:AZS). They’ve got we think two very good copper prospects. One that they are working on themselves and another that they’re working on in joint venture with a very big multinational Japanese company. We do think that, that particular company [Azure Minerals], when they start to reveal the extent of their mineralisation and the deposits that they have in the ground, that the market will re-rate them through 2013.
Lelde Smits: Finally David, what do you believe is the key to making money from the mining sector this year?
David Lennox: I think the real key is that you have to look at the long term aspects of mining – that’s why we like Rio Tinto Limited
(ASX:RIO) and BHP Billiton Limited
(ASX:BHP). But then you also have to look at I guess all the macro and economic factors that impact on resources – demand and supply. And then finally, we get down to what I enjoy which is the nitty gritty of looking at particular companies – And there, really I think the key is, ‘What has this particular company got in the ground that it can develop and generate value out of at some point in the future’. And really I think, the way to make money in resources is to ensure that you’ve got a very good inground deposit.
Lelde Smits: David Lennox, thank you so much for sharing your outlook today.
David Lennox: Thank you, it’s been an enjoyment talking to you.
Ends
