Best Opportunities Now to Be Found in Agricultural Commodities?
By Stephen Clayson
07 Oct 2007 at 06:12 PM
resourceinvestor.com
LONDON (ResourceInvestor.com) -- Your correspondent had an interesting discussion recently with Ian Watson, Chairman and Managing Director of London based mining investment group Galahad Gold [AIM:GLA] regarding the company’s decision to liquidate itself and return cash to shareholders - a process it hopes to complete by early 2008.
With demand for metals still strong and prices still way above the levels that prevailed at the start of the decade, Galahad’s move seems rather surprising.
The crux of Galahad’s rationale seems to be that the mining market is now, in Watson’s words, “more mature” than it was when the company began investing in mining opportunities back in 2003.
To expand, back in the early years of the decade, the mining sector was desperately out of favour. Galahad spotted that the mining sector was due a resurgence of interest, based largely on the straightforward interplay between past underinvestment in supply and a massive demand shift thanks to the China factor. It followed that a rising tide, in the form of widening recognition of the metals boom, would lift all boats.
But Watson and his colleagues now feel that the “resistance to the China story” that had existed has now been overcome, and that the theory of the metals super cycle is now widely accepted. Therefore, the easy money has been made - an interesting point.
Combine this with growing resource nationalism and the threat of assets in faraway countries being expropriated as well as the rise of militant environmentalism, and Watson feels that “opportunities in mining are not what they were,” even though he concedes that China is unlikely to stop growing at supernormal rates for some time yet.
Instead, Watson intends to pursue opportunities in agricultural commodities. Does this move make sense? Yes it does. Many soft commodities are set to benefit from the same rising demand as metals have over the past few years.
At the same time, agricultural land is finite, just as exploitable mineral deposits are, and investment in new plantations hasn’t kept pace with demand, which is rising both from a foodstuffs perspective and also as biofuels move into the mainstream.
However, it could be argued that resource nationalism can apply to soft commodities as much as to mining assets, and the same goes for environmentalist pressures. One can find troublesome objectors to new palm oil plantations just as one can to new copper mines.
Furthermore, growing agricultural output may prove easier than, say, finding economic nickel or copper deposits. However, let’s return to Galahad’s central point - that of the adoption of the soft commodity story by the investment community.
There is still some way to go before soft commodities can boast the same level of investment interest as the hard commodities, and if a wider take up is forthcoming, as seems entirely possible, then there could be easy money to be made, just as there was when mining stocks suddenly jumped back onto investors’ radar screens a few years ago.
However, your correspondent would like to make a final point. With all the constraints on the mining industry - from shortages of expertise and equipment to resource nationalism to projects plagued by ignorant, misinformed environmentalists - the rewards for backing the right project in the mining sector seem like they could be greater than ever.
Is the same true of the agricultural sector? Probably not - there are perhaps fewer investment variables involved. And a complex investing environment is what makes the right picks so rewarding. No doubt, there are exceptional opportunities in both sectors, but this is not the time to be getting out of mining.
© Copyright 2007, Resource Investor. |
