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Bond bullish on commodity stocks, uranium

Glen Norris
The Australian
Nov 13, 2023
Jeremy Bond says there has been an underinvestment across the ‘mining universe’ that has been manifested in tight supply. Picture: Adam Yip

Mining stocks are poised to rise amid tight supply for key commodities such as copper, nickel and uranium, says Terra Capital founder Jeremy Bond.

Mining stocks are poised to rise amid tight supply for key commodities such as copper, nickel and uranium that will be needed for the decarbonisation of the global economy.

Terra Capital founder Jeremy Bond said that, while commodity stocks had been caught in the “general malaise” affecting the broader equity market, share ­prices did not reflect the fundamentals.

“Equities have certainly underperformed the physical market,” said Mr Bond, who will appear as a stock picker at the prestigious Sohn Hearts & Minds Investment Conference at the Sydney Opera House on November 17.

“If you said a few years back that oil is at $US90, iron ore at $US200-plus, copper at $US350 or $US360 and gold at $US2000, but market sentiment is the worst in five years, people would think you were crazy,” Mr Bond said. “The underlying fundamentals for commodities look good.”

Mr Bond said there had been an underinvestment across the “mining universe” that had been manifested in tight supply.

“At the same time, we read about decarbonisation and electrification driving an uptick in demand,” he said. “That’s why when you look at commodities like copper they’ve remained relatively well bid. So there’s an implicit growing demand in there now that probably wasn’t there 10 years ago.”

Mr Bond said many companies in the sector had pristine balance sheets, very little debt, were buying back shares and paying dividends. “At some point that starts to get recognised and these companies will rise from the low multiples they currently trade on,” he said. “If you look at the sector, most companies trade on a three or four times earnings multiple, which is incredibly low compared to every other sector.”

Mining stocks are poised to rise amid tight supply for key commodities such as copper, nickel and uranium. Picture: Bloomberg

Mr Bond said a “really interesting dynamic” was playing out in the lithium market with a marked difference between short-term valuations and those with a longer-term investment horizon.

“If you look at your Pilbaras or your IGOs, Pilbara is probably the most shorted stock on the market, but if you look at the industry participants like Albemarle and SQM, they are willing to pay and that’s the same across the whole market,” he said. “The market is obviously driven by short-term commodity assumptions, but industry participants are more than happy to look at the long term.”

He said during the last mining boom between 2000 and 2010 most resource companies were trading at double-digit multiples or in the high single digits. He said that, while current investment allocations to the sector were very low, they were set to rise.

“We’ve probably never been as busy in terms of meeting prospective investors and interest in the sector is high,” Mr Bond said.

“But we are yet to see that inflow of capital coming in. I think a lot of people haven’t invested in the sector for a long time. But when you see those allocations increase, you’ll see those valuations change quite drastically.”

Mr Bond said he remained bullish on commodities such as uranium given there was significant new demand driven by ­decarbonisation and energy security. Uranium spot prices are up almost 50 per cent this year as China, Japan, India and the US expand nuclear power capacities.

“We’re seeing a change in policy (on uranium) across most governments,” Mr Bond said. “You have 437 reactors globally with 60 under construction and more than 100 planned. But supply remains incredibly tight. It’s a smaller market than a lot of other commodity markets, but prices could continue to rise and at some point get quite aggressive. There’s also financial buyers now in the market that weren’t there previously, such as Yellowcake or Sprott Physical Uranium Trust.”

Mr Bond said that, unfortunately, it was still difficult to develop uranium projects in Australia.

“There are companies like Boss Energy in South Australia but we are probably behind the curve compared to most countries, which is bizarre, because it’s the perfect way to decarbonise.”

The Australian is a media partner of Sohn Hearts & Minds, which will be held at the Sydney Opera House on November 17.

This article was originally posted by The Australian here.

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