World Economy

Renewed Optimism for Australia’s Micro Miners

Renewed Optimism for Australia’s Micro MinersRenewed Optimism for Australia’s Micro Miners

From gold to graphite to zinc to lithium, Australia’s army of “penny dreadful” stocks is rising from the ashes of the mining bust and growing at rates that majors like BHP Billiton and Rio Tinto can only wish for.

Micro miners are posting double or even triple-digit gains, buoyed by a belief that metals prices have bottomed, while companies that managed to come through the downturn are being aided by cheaper labor and operating costs, Reuters reported.

“It’s about the growth and the profit that can come very quickly,” said Perth-based retail investor Tim Larmont, who has been dabbling for over two decades in a sector that’s known as a hothouse for day traders and speculators.

“There’s always that expectation it will end tomorrow, but it looks like it could last longer this time. These companies aren’t burning through money like they used to. Anyone that’s survived is more responsible.”

Renewed optimism is reflected in near-record attendance at this week’s Diggers and Dealers mining conference, where some 1,800-plus prospectors, miners and bankers are crowding into the outback town of Kalgoorlie in Western Australia’s goldfields.

Metals prices have started to turn up after years of declines. Zinc is up 41% so far this year and nickel up 21%, while gold is trading at near record highs in Australian dollar terms.

  Low Costs, Little Debt

While the mining bust spelled the end for legions of small miners, those that remain are in the best shape in years.

Labor costs have dropped by as much as 50% since 2010 and an inability to borrow during the lean years means most miners carry little debt.

Machinery used to power the iron ore and coal mining booms in the last decade can now be purchased on the cheap, keeping overheads to a minimum, said Frank Lee, general manager of Ross’s Auctioneers and Valuers in Kalgoorlie.

And a soft oil price is providing cheaper diesel to many Australian mines and exploration sites that operate far from the electricity grid.

Lithium miner Pilbara Minerals easily raised A$85 million ($64 million) in a heavily oversubscribed placement in April and a further A$15 million from retail investors.

Nickel and gold miner Independence Group raised A$250 million last month in an issue that was 2-1/2 times oversubscribed, while gold miner Ramelius Resources and nickel prospector S2 Resources have also easily raised extra capital.

The Australian Stock Exchange’s Small Resources Index is up 65% this year, more than triple the gains for the big miner-weighted ASX 200 Resources Index, while the ASX All Ordinaries Gold Index has surged over 100%.