About Resources

Pricing Volatility

Resource shares can provide spectacular returns…
...but how can you select the winners?

Resource shares frequently display a higher level of volatility than those of industrial companies, due to the myriad of issues that can influence the performance of a company.

Key issues include the upside from exploration discoveries, operational performance, the growth available through new development projects and the high earnings leverage to cyclical commodity prices. Global economic activity, as well as specific supply/demand issues in turn drives commodity prices.

This presents equity investors with potential high rewards, but with a set of risk factors that need to be carefully considered. Stock Resource, through its weekly newsletter publication, provides specialised research from a team of experienced mining and financial analysts.

Performance Drivers

Shares in resource companies display a relatively high level of volatility. This relates to a myriad of issues, with the predominant share price drivers being:

The Global IP Cycle – demand for commodities have a strong correlation to global Industrial Production, reflecting expected increase metal and energy consumption. This expected increase in demand starts to reflect in the price of bulk, metals and energy commodities.

Supply of Commodities – the other key determinant in metal and energy market balances (and hence pricing) is the primary and refined productive capacities. Whilst capacity is more easily quantified than demand, it is frequently subject to disruption, and is also influenced by secondary markets.

Resource Company Fundamentals – mines and oil fields are finite assets and the quality and duration of operations will largely determine the sustainable earnings potential of a company, and hence its market valuation. Short-term earnings and cashflow are driven by operational performance, as well as sensitivity to specific commodity prices and exchange rates.

Exploration Opportunities – tremendous value can be added or destroyed by companies during the exploration phase. Valuation of exploration assets can be complex and volatile. Timely and insightful interpretation of exploration results can add tremendous value for investors.

Commodity Prices

Commodity data displayed are closing prices (if available), on the cash or spot markets (unless otherwise stated):

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