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They say nothing succeeds like success and so is the case with the commodities boom. While BHP Billiton and Rio Tinto make headlines for their soaring profits, the commodities boom has opened the door to junior explorers wanting a piece of the action. Essentially, higher commodity prices have made it a viable proposition for explorers to list and for investors to chance their arm.

As analyst John Rawicki, of State One Stockbroking, says: “No-one wants to explore, stgelop infrastructure or build new mines when commodity prices are depressed.”

With companies continuing to invest heavily in exploration and stgeloping new projects, Rawicki believes the commodities bull market is far from peaking, with rapid industrialisation in China and India sustaining strong demand. Rawicki’s stock list (see below) is heavily slanted towards traders and investors with an appetite for substantial risk and potentially fast capital gains in a sector leveraged to global economic growth.

The Sector

The metals and mining sector consists of about 750 listed companies, with a total market capitalisation of more than $385 billion, according to Rawicki. Of the total, about 585 firms have a market capitalisation below $200 million. The market capitalisation of the sector’s biggest stock, BHP Billiton, was $156 billion on March 4, 2011.

The sector is broad – major mineral producers earn billions of dollars, while junior explorers live in hope of a major find, and can rapidly burn cash if unsuccessful. Commodities in the sector include iron ore, aluminium, steel, copper, nickel, zinc, platinum, uranium, lead, gold, silver, phosphate, potash and rare earths.   

Stock Picks

 

WPG Resources (WPG) – click stock code or chart

Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)

Rawicki says this iron ore explorer has Australia’s highest-grade (64 per percent) at an unstgeloped hematite deposit at Peculiar Knob in South Australia. He says Peculiar Knob is on schedule to start production in late 2011, with an annual target of 3.3 million tonnes. The company’s Port Pirie infrastructure stgelopment, to be completed in November 2011, will enable the company to export iron ore worldwide to a growing list of potential customers. Rawicki says the company’s high grade iron ore will enable direct shipping so it saves on processing costs.

Hot Chili Limited (HCH)

Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)

The company has interests in three big multi-commodity uranium projects in Chile – Productora, Los Mantos and Chile Norte – and is targeting iron, oxide, copper, gold and uranium style deposits. Rawicki says Productora, its most advanced project, contains a large operating underground copper mine, and recent drilling results indicate significant copper intersections. The company aims to release a maiden JORC (Joint Ore Reserves Committee) resource in the second quarter of 2011 and the results will determine the quality and quantity of its deposit. Rawicki says Chile has an established mining industry with a strong history of government support, which adds appeal to this stock.

Kangaroo Resources (KRL)

Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)

Kangaroo is an emerging international coal producer, with eight advanced projects in Indonesia’s East Kalimantan region. It’s completing a $277 million acquisition of the big Pakar Thermal Coal Project from PT Bayan Resources. Rawicki says Bayan Resources, a $7 billion coal conglomerate, will manage all of Kangaroo’s projects. He says Pakar is expected to begin producing later this year, bringing Kangaroo’s total coal production capacity to almost 20 million tonnes a year, and the company’s total JORC resource to more than 4 billion tonnes. The company also has iron ore, base metals and gold assets in Australia.

Minbos Resources (MNB)

Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)

Potash and phosphate are key fertiliser ingredients. Rawicki argues that as populations rise and cities grow, the world will need to feed more people from less agricultural land. “We need more efficient crops, which will mean more fertiliser,” he says. Minbos Resources own 50 per cent of a prospective rock phosphate project in West Africa. Rawicki says Minbos has a solid maiden JORC resource of 75 million tonnes at 12.6 per cent phosphate. He says the company has the potential to become a world-class producer given an impressive exploration target of between 333 million tonnes and 538 million tonnes of phosphate. Rawicki says the phosphate price has more than doubled since last year to about US$140 a tonne.

South Boulder Mines (STB)

Chart: Share price over the year to 04/03/2011 versus ASX200 (XJO)

Rawicki says South Boulder Mines own a quality potash project in Eritrea, Africa, with a massive JORC resource of 548 million tonnes at a high grade of between 18 and 23 per cent. He says it’s the world’s shallowest deposit enabling very low cost production. The company aims to start producing up to 10 million tonnes of potash in 2016, equivalent to about 20 per cent of the world’s supply.

COMPANY CODE SHARE PRICE CLOSE
WPG Resources WPG 78 cents
Hot Chili Limited HCH 70 cents
Kangaroo Resources KRL 14 cents
Minbos Resources MNB 50 cents
South Boulder Mines STB $5.80

 Price current to market close, March 4, 2011.