China juggernaut still the “main game”: analyst

Addressing delegates of an industry conference in Victoria, Shearer affirmed his views despite the uncertainty that exists over Australia’s mining taxation future and remnants of the GFC.
Shearer, who was representing Austock Securities, told delegates that China will build around four to five million new buildings between 2005 and 2025.
“Just as one example of their looming demand and despite recent China economic slowdown figures over the past week, that building rate is equivalent to constructing up to 10 cities the size of New York,” Shearer said.
“GDP capita in China is only 14 per cent of the United States, and it has only 33 vehicles per 1,000 people compared to 800 in the United States.
“However, China is a nation of savers so they need to rely on their currency remaining low to make their exports cheap. So as much as the US may rely on China, so too does China rely on the United States - a balancing act for both in controlling growth - and that has an impact on the uncertainty and nervousness now evident in Australian equities markets and attitudes.”
Shearer said the past 10 years had shown strong correlation between movements in the resources sector and Australia’s equities markets.
He warned of emerging changes in the resources landscape, particularly with changes in levels of sovereign risk and the fact that an increasing number of mineral discoveries need to be made at depth.
“Copper is a good example of risk and discovery issues, as we will over the next 25 years through to 2030, consume as much copper (620 million tonnes) as we have in the past 100 years (585 million tonnes to 2006),” Shearer said.
“The levels of equity market speculation in copper have also been high and with copper harder to find and costing more to find and at lower grades, this combination of factors is adding to volatility in copper - with similar stories for some other mineral commodities.”
The Austock analyst said the broking house favoured as its preferred commodities going forward - gold, iron ore and copper.
“Gold is proving its value as a flight to safety in times of uncertainty and remains a hedge against inflation,” Shearer said.
“Iron ore is seeing some cutback in prices due to destocking but this will suggest more volatility in future prices compared to previous 12 month benchmarks - while copper - the commodity bellwether - has demand keeping prices above long-term averages.”
On Australia’s appetite for new capital raisings and Initial Public Offers and ASX listings, Shearer said the resources sector continues to represent the most number of raisings – 45 per cent - but they represent only 22 per cent of the value of Australia’s current IPO listings.
“As to other pressure points on equities and investment markets, there remains an argument for a flow through share scheme, and questions must remain over how much the new mining resource rent tax will deliver,” he said.

Victoria – open for resources investment
Also speaking at the industry conference, the Department of Primary Industries Victoria’s acting director of GeoScience Victoria, Paul McDonald, said the State offered an impressive amount of mineral wealth remaining to be exploited - some 47 per cent of its ground footprint is open for exploration.
“Victoria may be small but we are open for business,” he said.
“Victoria is a world-class province, for existing and untapped potential, for gold, mineral sands and oil and gas, it is an emerging province for base metals and geothermal and it is a principal brown coal province within the Australian commodities landscape.
“Significantly, we are increasingly collecting data and information into a range of comprehensive commodity studies and 75 per cent of the State has now been modelled geologically in 3D.
“We will complete that work on the whole of the State by the end of this financial year after a four year compilation program.”
On the gold front, McDonald said the undiscovered gold endowment in the Stawell Zone was 38 million ounces of gold, with the potential for at least one million ounce field.
The Bendigo Zone offers 32 million ounces with potential for at least three, one million ounce ore fields with a three million ounce potential in the Melbourne Zone, the mineralised area immediately east of the Bendigo Zone.