Tim Elliott says we should celebrate Australian mining more. He says the industry that made Australians the richest people in the world in 2022 is set to boom harder than most expect, with resources stocks still cheap.will be the springboard opportunity for most investors and poor sovereign energy policy is the root cause of global inflation, according to the investor.
“Personally, I’d rather own a miner on 4x EBITDA underpinned by physical assets that are increasingly scarce, than a tech stock where you pay away 30 times FY30 projected sales reflecting heroic growth assumptions,” he says. “Miners might have cyclical downturns, but they have hard assets and bounce back soon enough, whereas a lot of puffed-up growth stocks will collapse and never recover – now that’s real risk.
“Miners are consistently undervalued because the market uses insanely low long-term commodity prices built on deeply flawed assumptions,” says Elliott. “It assumes there’s a deep pool of shovel-ready projects in low sovereign risk jurisdictions that can quickly be brought on to keep prices down at the marginal cost of supply, perhaps with a 15 per cent return on investment. Most of those assumptions are not true anymore, if they ever were.
“The growth should be self-funded because they’re generating remarkably strong cashflow every quarter,” says Elliott.“We’re bullish on electric vehicles, with sales in China continuing to beat expectations. Commodities can be cyclical, but equities are already pricing in large falls in lithium pricing, and the reality is that later this decade we start to see a large supply deficit that looks permanent. That’s certainly not in Allkem’s price.
“Yet it’s getting harder to bring on new mines, it’s costing a lot more and taking longer, there’s a lot more red and green tape in Western countries. Groups litigate to block even lithium mines essential for decarbonisation.”