Three Resource Stocks for your Stocking

Year of the Vaccine2021 has been the ‘Year of the Vaccine’ and what it has meant for your investments. Obviously there have been winners and losers, the ASX 200 has rallied from 6500 to 7400 as conditions have returned to normal or at least the new normal. CV19 has produced some strange winners and highlighted the strong businesses with balance sheet strength and good management. Last Christmas, the go to present was toilet paper. This year it has been the year when inflation came back to haunt us. House prices have made us all feel wealthy despite ever increasing debt levels and supply chains have struggled to keep up with demand. Home renovations have become almost compulsory, and we have cocooned ourselves in luxury ‘seachange’ living.
What then does 2022 hold? What are the themes and where will the money be made? We look at some of the sectors that will be beneficiaries of the inflationary cycle and higher rates.

The ‘Big Australian’ BHP

First up BHP, this stock has suffered in 2021 as a confluence of events has shaped the latter part of the year. Falling iron ore prices and the transformation it has embarked upon. There is not mush we can do about the iron ore price. What is good is that lower prices will drive marginal producers out of production leaving the strong to benefit when prices tick higher again. The other part of the BHP conundrum is the collapsing of the Dual Listed Structure. This almost perfectly timed with the bottom falling out of the iron ore price. A true double whammy. As Sir Humphrey would say, very courageous indeed. The UK share price had long traded at a significant discount to ASX listed BHP. Collapsing the structure ensured the Australian shareholders felt that pain. Transition to a 21st century company with one listing, potash, copper, iron ore and nickel was never going to be easy. But breaking eggs is part of making an omelete.2022 could be the year when resolution of several key issues are solved, and the swan will emerge from the ugly duckling.  

Second stock in our stocking

In the resource space is a nickel stock, Panoramic Resources (PAN). This is a start up story. It Savannah operations will be coming back online in December. Production will then ramp up in 2022. This will shift the focus from exploration and getting the underground mining on track to actual production and cashflow. It now has 01.1kt of ore located at the surface stockpile at the end of the current quarter. It has around $45m in the bank and has the Trafigura loan facility. The key catalyst will be production ramp up and the underlying nickel, copper and cobalt prices. However, if it can execute this one has good potential to continue top rerate.  

Final stock

Third and final stock taps into the lithium theme which has been so strong in 2021. Mineral Resources (MIN). Not only a lithium play, but also iron ore. It has had a nasty 2021. MIN currently produces around 535ktpa of spodumeme. This is from two projects Mt Marion where is owns 50% of the project and the soon to be reopened Wodgina Plant. This is targeting 235ktpa by 3Q22. The company could also ramp up this production to be fully operational by FY24. MIN owns 40% of this project. MIN also owns 40% of a lithium hydroxide plant under construction at Kemerton which will eventually produce 50 kt of lithium hydroxide, so its share is 20 kt p.a. There are some numbers bandied around about how much the market is valuing EV/EBITDA. Multiples range from 11 to 31 in some cases. MIN is expected to have around $1bn in EBITDA out of lithium in 3 years. That puts the whole company on a very cheap multiple of 8 time currently. Too cheap. In addition, MIN has a mining services business and the iron ore business. Plenty to like.  

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