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Investment fashions

My wife tells me that I don’t know anything about fashion. I tell her I have style and that never goes out of date. Not sure she agrees, but I do know a thing or two about investment fashions. The cloud, the Gig Economy, AI, IoT, SaaS…These are all trendy investment buzz words right now. Real red-carpet types. Old media, bricks and mortar retail and coal on the other hand….Well, these are less popular. They’re not going to the party. They don’t even know about it!

Technological disruption is the problem for the first two. But coal has a far more pressing problem in its CO2 emissions and climate change. This is a passionate subject for lots of people and their voice has been heard. Coal’s no-where near fashionable. Unlike me, it doesn’t even have “retro cool”. Banks don’t like lending to coal projects, major funds have stepped back and even the miners are dumping assets. For many, it’s just too hard.

Rio has over the last week or so cleaned out its coal bunker. The Kestrel project in Queensland has been sold to PE and an Indonesian company. Prior to this, Glencore took most of Rio’s other coal assets off their sooty hands. Rio now has about $4bn of extra cash in its pocket and no risk of any more awkward coal-related conversations. They’re almost a bunch of Greenies. Not a bad proposition for any resources investors that don’t like coal either. Give me a call if that’s you.

The irony is of course that technological disruption couldn’t be further from the problem for coal. Alternative energy technologies are developing at a rapid clip, but they are not where they need to be to allow an immediate flicking of the off switch for global coal-fired power generation.

Thermal coal prices are back to highs not seen for more than 5-years. But that isn’t triggering a rush of new coal projects. Current production will rush to benefit from the price strength, but we are not going to see anything like the fresh investment that would have historically been the case. Good news for CO2 levels. Good news for pricing too. So Glencore, the Indonesians and co probably feel pretty good about their investments.

If you’d like to play their side of the table, BHP still has its coal assets. So too does that canny investment house Soul Pattinson (SOL). This is through their stake in New Hope – which is currently burning brightly. Call to discuss…

Another big deal in resources was the A$418m bid Oz Minerals (OZL) lobbed at Avanco (AVB). Avanco’s listed in Oz, but has copper-gold projects in Brazil at varying development stages. They obviously prefer hard cash to hard work and have accepted the offer.

OZL now looks a lot more interesting, going from just Prominent Hill, to the development of Carrapateena and now 4 Brazilian projects (assuming it’s all done and dusted). These projects have a long way to go before they are all operating to their potential (or even operating at all for some), but questions over where OZL’s longer term growth will come from have been put to bed. I reckon this is now a more interesting story and who doesn’t like gold? Now that’s always fashionable isn’t it?

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