According to Datt Capital, the sector valuations are now favourable, both relative to other industries and their historical averages. The sector is additionally supported by long-term global trends, such as the shift towards renewable energy and electric vehicles, which will further boost the outlook for lithium and copper.
Emanual Datt, the firm’s chief investment officer, described the resources sector as “the most inefficiently priced market”, but he cautioned that it offers significant opportunities only for those investors who understand its nuances.
“By applying global themes to local markets, skilled managers and investors can generate consistent alpha over time,” he said.
Similarly, Jamie Hannah, VanEck’s deputy head of investments and capital markets, highlighted the sector’s value and growth opportunities compared to other asset classes.
“Many other asset classes like equities have been in a solid bull market for a number of years whereas certain key commodities have struggled for traction yet are still critical to everyday living,” he told InvestorDaily.
“Many large, diversified resource companies have underperformed the market over the past few years, and there is a strong case to say that many of these are now due a recovery and could outperform the broader market over the coming years.”
He also noted that the sector offers certain pockets of value, particularly in gold. Gold bullion price has skyrocketed 28 per cent since the start of the year, and typically, gold mining companies’ share price is leveraged to the price of gold, he explained.
“Hence, if gold goes up 28 per cent, you’d generally see the gold mining share price go up by more,” he said.
“We’ve seen quite a lag on this leverage effect in the current cycle and it seems that there is value within this sector.”
If a company is mining gold at an all-in sustaining cost of $1,400/ounce and the price of gold rallies to $2,600, then this increase is pure extra profit to the company.
On the other hand, Datt explained that inefficiencies in the sector arise from its complexity and lack of institutional focus, especially in smaller-cap companies, which creates greater opportunities for active investors.
“Natural resources are essential to daily life and underpin global economic progress,” Datt said.
“Global population growth, urbanisation and rising prosperity in developing economies are driving increased demand for minerals and energy.”
He also highlighted the sector’s resilience during the 2020 trade tensions with China when the sector was hit with tariffs.
“Despite the geopolitical stand-off, Australian iron ore and coking coal producers thrived, underscoring the sector’s robustness,” he said.
Datt remains positive about the supply side outlook, pointing to cautious mining investment and oil companies prioritising debt reduction.
Moreover, the sector’s key producers typically maintain strong balance sheets, which gives more flexibility and allows them to better navigate market volatility, Datt noted.
While he admitted that some short-term challenges exist, Datt is optimistic about the sector’s future.
“For investors, resource exposure offers a way to diversify portfolios while capitalising on global trends. It’s a sector that combines strong fundamentals with significant long-term potential.”
Commenting on the sector’s challenges, Hannah emphasised that the resources sector is vulnerable to geopolitical risks.
“Mining is still a key factor to a resource company and therefore they are affected by the underlying commodity prices as well as the political and regulatory environment in the country of operations,” he said.
According to preliminary estimates for November, the Reserve Bank of Australia’s Index of Commodity Prices has decreased by 11.8 per cent in SDR terms over the past year, led by lower iron ore and coking coal prices. The index has also decreased by 12.6 per cent in Australian dollar terms.
