Back

Equities

More baskets for our eggs

Rod Skellet icon

Rod Skellet

Equities Investment Strategist

See Full Insights >

Rod Skellet

Equities Investment Strategist

Rod Skellet joined Mason Stevens in 2019 in the newly created role of Equity Strategist. In this role, Rod’s focus is the delivery of co-ordinated investment opportunities across private equity and domestic and international markets. He provides clients with information about equity opportunities – ideas, fundamentals research, technical observations, and integrated execution, to align customer engagement and serviceability. With over 30 years of experience in financial markets, Rod has a strong background in both equity and debt derivative markets and equity and debt capital markets, having held positions at ASX, Ords/JP Morgan , Deutsche Bank, BITG and Origin Capital. He was accepted as a master stockbroker by the Australian Stock Brokers Association in 2001 and is an ASX Derivative Floor Governor.

The political contest between Australia and China is still a regular news story, squeezed in amongst COVID-19 stories, with our economy on tender hooks awaiting the negative impacts of the lockdown in Victoria. Add to this the fear of what could happen if a surge in positive cases occur in NSW, it is little wonder we are not talking about anything else. News on our trading relationship with China is important, but most people dismiss the verbal rhetoric as we understand that China needs to keep relations with Australia cordial and workable due to its reliance on our iron ore. While Brazil has supply issues, China has no other real avenue to source its critical iron ore needs. Hence the reluctance by China to really upset the apple cart.

With China committing funds internally to build more infrastructure as part of the plan to offset the impacts of COVID-19, these projects need plenty of steel. Those Chinese steel mills have little option but to buy Australian mined iron ore, with our three big miners, BHP, Rio Tinto and Fortescue Metals performing very well as a result in the 4 months post the COVID-19 induced market slump. Since mid-March when we experienced the lows in the market, Rio has rallied 30.5%, BHP 43.52% and FMG an exceptional 78.3%.

In this time of extraordinary government stimulus, the call should go out for Australia to diversify its industries and build sectors that reduce our reliance on iron ore exports to China. The reason Australia needs to take this opportunity and develop other industries is because we cannot rely on iron ore forever. On the east coast of Africa in the nation of Guinea is the giant Simandou iron ore project. Simandou is on the cusp of receiving the go ahead by the China State owned Assets Supervision & Administration Commission which oversees the biggest government owned enterprises.

This giant deposit that has reserves of 2.4 billion tonnes of 65% to 66% Fe is split into 2 halves. Rio Tinto and Chinese state owned Chinalco own one half and the other half, following a Guinea Govt tender, is owned by a consortium consisting of Singapore ship owner Winning Shipping, Chinese Aluminium producer Shandon Weiqiao, Yantai Port Group and finally logistics supply company United Mining Supply. The development of this huge deposit could deliver as much as 100 million tonnes per annum to China, putting a significant dent in the supply aspirations of both Australia and Brazil in 5 years’ time.

Source: Mining.com

With ownership of the Simandou mine settled, the focus has been on the development and funding of the 670km rail line from the mine site in the South East of Guinea to the port at Conakry. This is the key piece of infrastructure has been the stumbling block for owners in the last 10 years. The logistics of building the 670km line through virgin jungle involves the construction of 24km of tunnels, 29 bridges and the relocation of more than 10,000 people. These were the easy problems to solve. Funding is the real problem, with the stable Rio Tinto & Chinalco consortium (50% owners) struggling to come to terms with the US$20billion plus price tag and justifying the spend to shareholders.

With another Chinese owned state enterprise now involved, the development become more strategic in nature from China’s perspective, especially in this time of COVID-19 and massive government infrastructure spend. With funding for the railway likely to be approved, the clock will start clicking down on the delivery of its first ore and the overall impact on the global iron ore supply/demand equation. The impact on Australia’s iron ore exports if and when this deposit is operating should reduce China’s reliance on Australia & Brazil for the critical commodity. From Australia’s perspective, the development of additional industries that could diversify our reliance away from iron ore needs to start now. Whether its in the field of manufacturing, development of large-scale agricultural food businesses or the global delivery of SaaS, the need to develop these industries while the sun is still shining on us from an iron ore perspective, should not be squandered.

The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.

Related Post

Equities

Australia’s Weather

21 October 2020 | Rod Skellet

Equities

Running the ruler over Aussie Oil stocks

14 October 2020 | Rod Skellet

Equities

Oil: Still on Troubled Waters

13 October 2020 | Rod Skellet

Equities

Gold Still Glitters

8 October 2020 | Rod Skellet