Haven''t posted for a while but have been reading the threads. Like most I have also been disappointed by the price slide but can understand it.
Martin Ferguson was right in what he said except I would have added the few extra words "as we knew it" to read "the mining boom as we knew it is over".
What I mean is this. In the last mining boom we had an over heated market and big profits were to be made easily. Now you have to work at it. The profits will still be there and mining will stay a major force in the economy, but not as big as we knew it before GFC.
Why? There are some macroeconomic forces at play which I will hopefully describe.
1. The European crisis is far from over. This still has a long way to play. The burden of ageing infrastructure, independent nations in a federation, social welfare policies, low taxation etc will all combine to ensure Europe stays in financial crisis for some time. This will dampen demand.
2. Whilst prices seem to have returned to pre GFC levels, they haven't. Pre GFC the Australian dollar was worth about 70c US. Now the Australian dollar is worth about $1.05 about a 50% change. Tis means that contracts written in US$ are worth less now in Australian dollars. I believe OZL''s contracts are in US dollars and the commodity prices are in US dollars. This high Australian dollar will continue for some time I think until interest rates start to rise in the US.
3. Whilst I expect demand from China and other BRIC countries to continue, Australia in the future will face increasing competition. China is going hell for leather investing in mines in Africa and other countries, much like the Japanese steel mills did for iron ore in South America in the 1980's. The reason is to increase competion among a greater number of suppliers and possibly capture the supply side for their markets.
4. Lastly, I do think this Govt has unintentionally created sovereign risk and there are less investment dollars coming to Austrailia. THe investment dollar will reach a peak next financial year then tail off. Proof of the sovereign risk is in what Juila Bishop said today. She said (not in her words), the lower revenue from the MRRT that now appears likely will cause a budget black hole that will either result in debt (a political no no),a rise in MRRT rates, or an expansion of the MRRT base to other products (read copper gold etc). What wil this mean for Big C ----who knows - it is uncertain and a risk. It is interesting to note that two of he big 3 who agreed to the MRRT have since cancelled or scaled back projects.
So for all these reasons i can understand the drop in price even if I don't like it. There will still be profits to be made but it will require work, patience and not being too greedy.
My opinions only, hopefully to add to a good discussion
Regards
OZL Price at posting:
$6.95 Sentiment: Hold Disclosure: Held
