The Next Mining Super Cycle is Extremely Close
Sheesh! If you think Australia’s construction boom is something, check out the latest news from the Middle East. Bloomberg says the Saudi Crown Prince wants to spend US$500 billion to throw up a new city.
Yep — that’s billion with a ‘b’.
Not only that, the city will be more liberal than traditional Saudi society and operate under separate laws.
Will action follow the talk? Who knows? There’s definitely some sort of shift coming out of Saudi Arabia, or the Crown Prince at least.
The sceptic will wonder if Saudi Arabia will actually follow through on this. One thing nobody doubts is whether it will have the money do it if the public float of part of Saudi Aramco — the national oil company — goes ahead.
That would allow the country to spend $500 billion and have change left over.
There’s some serious money washing around the world. This makes me bullish…
The fantasy of low inflation will be shattered
Even Australia’s $130 billion Future Fund has 18% of its portfolio in cash.
I don’t envy their task of trying to find somewhere to put it. The bigger you are, the less nimble.
And the bond market — the traditional hunting ground for a fund like that — yields nothing over most of the world.
The central bank says there’s low inflation. Of course, anyone living pay cheque to pay cheque knows that’s complete BS.
Ask any prospective homebuyer in Melbourne, for example. Land values rose 20% in the last year alone.
There’s also the major problem of the natural resource market right in front of us.
Commodity prices are going to go a lot higher. Inflation is going to unleash on the world’s fixed income market like the proverbial fox in the hen house.
Since taking over The Daily Reckoning in April, I’ve made the case that there’s a second mining boom coming.
Everything I’ve seen since has confirmed this. But research out of Goldman Sachs might have even taken it up a notch…
The team there says there’s another super cycle up ahead. It doesn’t take Albert Einstein to see why.
Spending on exploration has touched a 30-year low. That’s going to become a problem when the existing mining operations are old and rundown.
Apparently, 60% of the world’s top 100 mines were built last century.
Those reserves have been run down for a long time now. Goldman Sachs had a nifty way of summing this up actually. The last mining boom was a ‘demand’ story out of China.
The next one will be a (lack of) ’supply’ one.
That reminds me of Jim Rogers.
He was a hedge fund pioneer who called the first big commodity boom in the late 1990s.
For years, Jim has said that commodities will make a comeback because there just has not been enough investment in mining over the last couple of decades.
But the mining bear market from 2012-2016 means most people stopped listening to Jim a long time ago.
He will be proved right in time. The lag times on getting mines up and running is enormous. In the meantime, whatever supply is available will be bid up and drench mining companies in money.
This is wildly bullish for Australia
Chinese capital alone could pour into this country to send out explorers and drillers all over the place to find new resources. It’s already happening in the lithium space.
But it won’t just be here. It will be worldwide…
For example, just today comes the news that a Chinese chemical company is going to spend $1.8 million to take a 10% stake in a lithium explorer with prospects in Canada.
The implications flow out to the wider Australian investment landscape. Anyone who thinks that Aussie shares or the property market is going to collapse from here is living in a fantasy land.
Commodity price strength will drench Australia in money, and it will flow into asset markets.
I also find it hard to be particularly bearish about the Aussie dollar with this outlook. We’ll see on that.
There’ll be dips and worries, of course. But the big miners could do a lot of lifting to take the share market into all-time highs.
That’s something I expect to happen within two years.
And for all the fuss we all keep hearing about China’s slowdown and excessive debt, I can tell you this…
Aussie stocks that sell into China are booming
I went over some numbers yesterday.
See for yourself…
a2 Milk Company Ltd [ASX:A2M] has been the star of 2017.
On 3 January, one share would have set you back $2.05 at the market open.
Today, that same share will set you back around $7.
It’s gone up 240% in 10 months.
The Australian said in August…
‘… A2 Milk said today that net profit for the year through June roughly tripled, driven by growth in demand for its infant formula in China and Australia.’
Or consider what SBS reported on Treasury Wine Estates Ltd [ASX:TWE] in August…
‘Wine merchant Treasury Wine Estates says the market in China is growing so strongly that it is finding it hard to keep up with demand.’
It opened at $10.68 on 3 January. It’s over $15 now.
These are billion-dollar companies showing the returns you normally get from small caps.
And yet the pundits would tell you to worry about a China collapse?
That’s not what I’m seeing.
Here’s the reality. The Chinese will pay a premium for Australian goods, especially infant formula and food.
Bellamy’s Australia, for example, is up 230% from $3.74 on 20 March to 24 October.
It sells organic baby food and snacks.
I could go on and on…
Wattle Health Australia Ltd [ASX:WHA]…more infant formula…up over 700% since March.
Blackmores Limited…Australian health supplements…up 55% since August.
Can’t you see? Now is the time to be looking for opportunities to get your money into stocks!
What more proof do you need?
Editor, The Daily Reckoning Australia