Report Date: 8 February 2016
Where are we in the Cycle?
As growth forecasts are wound back, the duration of the metal price cyclical
trough becomes more prolonged although the depth of the cycle might not be
affected materially. Growth prospects and exchange rates are working
against recovery, presently.
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Market Directions
The relative performance of the resources sector has been improving with
gold equity gains being particularly strong. Despite their recent rise,
gold bullion prices remain in a downtrend dating from 2012.
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Portfolio Performance and Positioning
The Phase I segment of the portfolio models contributed strongly to the
overall outcome n the past week with phosphate mine developer Potash West
leading the way. The recovery of larger cap Phase III companies put them
ahead of overall sector outcomes. Several portfolio changes reduced
recommended portfolio cash holdings.
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Stock Reviews and Rating Analysis
MZI Resources (MZI:AU) is one of the few companies to
emerge from the cycle as a producer. The WA mineral sands miner was the
subject of a PortfolioDirect rating report in May 2015
which highlighted the importance of a resource base extension to validate a
longer operational life. The ‘3’ rating received by the company assumed
that the operational life of the Keysbrook project would be extended beyond
the 5.5 years to which the company is committed formally. Unusually for
Australian miners, MZI is operating on lands granted prior to 1899 when
mineral rights (with a few exceptions) were attached to surface holdings.
Production intentions will consequently be subject to landowner approvals
making definitive statements about business plans more difficult and leaving
the company with a higher risk profile than would have otherwise been the
case.
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