Why I've topped up my stake in LYL, page-63

And here is a chart of quarterly mining investment in Australia (in nominal AUD, million):

That probably looks like we are still above trend. To get a better idea of the "real" level of expenditure, here is the same data, this time as a ratio of nominal Australian GDP (though perhaps it is global GDP that is more relevant):

Admittedly that possibly still looks like we are a little above long term averages, and it seems like expenditure may still be falling.

However, there are a couple of things that should be kept in mind.

Firstly, the influence of LNG:
The extent of the last boom was massively distorted by the unprecedented expenditure on monster LNG projects. It is my understanding (admittedly based on information that may now be a little dated) that the continuing aggregate decline we have seen in the last few years (since CY 2016) has ALL been about LNG. All other resources (coal & minerals) have actually been flat over that period (though perhaps in decline, in real & GDP adjusted terms)

It is my understanding that the unwinding of LNG capex is almost complete - and so the scary influence on the charts will soon be a thing of the past (perhaps by CY19).

Secondly, the need to sustain yesterday's boom:
The massive boom of the past, whether we are now over supplied or not, means we now have much more asset depreciation (even on GDP adjusted terms) than what we had prior to CY 2011. After all, mines are not like real estate. If there is an over supply of office buildings, the only time you as a contractor are going to see any renewed need for your services, is when demand starts eating into supply. In real estate, essentially all capex is growth capex. There will be minimal real depreciation requiring sustaining capex.

However, a mine, regardless of how profitable it is, if its owners want it to keep running, they will only be able to starve it of capex for so long.

I would welcome input form those that understand mining better than I do, but I fail to see how, all else being equal, the next several years should not see higher mining capex (to GDP) than what was seen in the past.


Ok, I don't want to speculate too much on where the macro is headed. However, the key point is that if I combine the above, with current sentiment and the freshness of the last bust, I struggle to see that we are currently in the midst of a substantial mining boom. In any case, the returns currently being generated by LYL (relative to the current price) will be very attractive even if they come off their current levels by a substantial amount.