Investing in ASX Mining Stocks? Get Comfortable with Optionality

Australia’s mining sector has been receiving increasing attention in North America, but for many investors the ASX is still uncharted territory.

Speaking on the sidelines of the recent Denver Gold Forum, Paul Hissey, director of Australian mining research at RBC Capital Markets, said it’s worth being aware of what’s going on down under.

Why? In the last few years, he explained, the size of Australian mining companies has “really boosted,” with smaller companies purchasing assets from major miners like Newmont Mining (NYSE:NEM) and Barrick Gold (TSX:ABX,NYSE:ABX).

“I think on the back of those purchases and some really good exploration they’ve been able to grow significant businesses,” Hissey said.

RBC has been recommending that investors look at ASX stocks for the last 18 months, said Hissey, and he still sees opportunity. However, he cautioned, “people have already put their money to work in our market.” That means if the gold price rallies then money may flow from Australia back to North America “because people will want to own more leveraged names in a rising price environment.”

Hissey suggested, “perhaps the best approach from a portfolio perspective is you need a blend of both [Australian and North American stocks].”

He also encouraged investors to make sure they understand the optionality of ASX stocks. “There are a lot of companies in Australia [that look] look very, very expensive,” he said. But “a lot of them have a very long history of being able to extend and replace [their] reserves, and so investors really need to be comfortable with … the optionality and the opportunity which exists outside of the reserve statement.”

Listen to the interview for more insight from Hissey on the Australian mining sector, including one company RBC has given a “top pick” designation.

Click here to see the full Denver Gold Forum playlist on YouTube.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

RBC Capital Markets Disclosure:

A member company of RBC Capital Markets or one of its affiliates expects to receive or intends to seek compensation for investment banking services from Dacian Gold Ltd. in the next three months.

RBC Capital Markets is currently providing Dacian Gold Ltd. with investment banking services.

No disclosures found for Evolution Mining Limited.

No disclosures found for Gold Road Resources Limited.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from Northern Star Resources Limited during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to Northern Star Resources Limited.

RBC Capital Markets is currently providing Northern Star Resources Limited with non-securities services.

No disclosures found for OceanaGold Corporation.

No disclosures found for Ramelius Resources Limited.

No disclosures found for Regis Resources Limited.

No disclosures found for Resolute Mining Limited.

No disclosures found for Saracen Mineral Holdings Limited.

A member company of RBC Capital Markets or one of its affiliates received compensation for products or services other than investment banking services from Silver Lake Resources Limited during the past 12 months. During this time, a member company of RBC Capital Markets or one of its affiliates provided non-securities services to Silver Lake Resources Limited.

RBC Capital Markets is currently providing Silver Lake Resources Limited with non-securities services.

For a list of all recommendations on the company that were disseminated during the prior 12-month period, please click on the following link: https://rbcnew.bluematrix.com/sellside/MAR.action

Explanation of RBC Capital Markets Equity rating system

An analyst’s ‘sector’ is the universe of companies for which the analyst provides research coverage. Accordingly, the rating assigned to a particular stock represents solely the analyst’s view of how that stock will perform over the next 12 months relative to the analyst’s sector average. Although RBC Capital Market’s ratings of Top Pick (TP)/Outperform (O), Sector Perform (SP), and Underperform (U) most closely correspond to Buy, Hold/Neutral and Sell, respectively, the meanings are not the same because our ratings are determined on a relative basis.

Ratings Top Pick (TP): Represents analyst’s best idea in the sector; expected to provide significant absolute total return over 12 months with a favorable risk-reward ratio.

Outperform (O): Expected to materially outperform sector average over 12 months.

Sector Perform (SP): Returns expected to be in line with sector average over 12 months.

Underperform (U): Returns expected to be materially below sector average over 12 months.

Risk Rating

As of March 31, 2013, RBC Capital Markets suspends its Average and Above Average risk ratings. The Speculative risk rating reflects a security’s lower level of financial or operating predictability, illiquid share trading volumes, high balance sheet leverage, or limited operating history that result in a higher expectation of financial and/or stock price volatility

Equity valuation and risks

For valuation methods used to determine, and risks that may impede achievement of, price targets for covered companies, please see the most recent company-specific research report at https://www.rbcinsight.com or send a request to RBC Capital Markets Research Publishing, P.O. Box 50, 200 Bay Street, Royal Bank Plaza, 29th Floor, South Tower, Toronto, Ontario M5J 2W7.