A sniff of peace in our time in the Middle East proved to be enough to fire up the share market, particularly the resource sector.

That the sector outperformed its mundane industrial cousins was no mean feat given oil prices across the main benchmarks of more than US$100/bbl is as good as an indicator as there is that it’s not over yet in the Middle East.

Still, the outperformance should not have been a surprise given resources equities were particularly hard hit in the market sell-off that followed the start to the war five weeks ago.

Commodity prices were also hit, but not to the point where they were blowing up earnings expectations for the miners.

Risks around prolonged supply disruption to diesel supplies, the lifeblood of the mining industry, remain. As continuing US$100-plus oil suggests, it’s a legitimate concern to have.

But the strength of Wednesday’s equities bounce-back and ongoing historically high commodities prices (amplified by the weaker Aussie dollar), point to the sell-off of the last five weeks having been overdone.

Macquarie research desk hinted at all that last Friday in a note titled “Returning to the scene of prime entry positions”.

“Following a sector sell-off, valuations have returned to attractive levels with earnings expectations largely intact but price levels sharply lower,” Macquarie said.

“While market volatility, risk of conflict, and an energy shock have all conspired to see a rebasing of multiples in resources, Australia’s globally competitive mining industry offers a real asset class (which has inflation protection properties), with growth and an increasing geostrategic importance as energy supply chains increasingly turn to metals to help generate, store, and transit energy.’’

Flying the flag for the resources sector there for sure.

Copper & Gold 

Copper caught the peace dividend to rally to US$12,335/t in Wednesday’s market, which is 24% higher than last year’s (calendar) average for the red metal. Gold too rallied, rising to US$4,687/oz, 36% higher than last year’s average. 

While both are off their recent highs due to the run for the exits by hot money following the start of the Iran war five weeks ago, they nevertheless remain historically high prices, which gives plenty of incentive to producers and explorers alike.

But as suggested earlier, that has not stopped copper and gold equities being smashed since the war started, notwithstanding the gains notched up in Wednesday’s peace-in-our-time share market.

Developments in coming days – there is a possibility of a ground invasion by US and Israeli forces as much as there is the possibility for the heat to come out of the conflict – will determine where to next for metal and equity prices.

Copper in particular seems well placed despite a stocks build-up due to non-war factors. China, the biggest copper consumer, has reported stronger growth and Chile, the world’s biggest producer, has reported its lowest copper output in nine years.

Then there is potential for mine production setbacks given the scope for the diesel/sulphur crisis caused by the effective blockade of the Strait of Hormuz to drag on well beyond any peace settlement.

There is also the potential for mines to miss their guidance numbers due to non-war reasons.

That was the case during the week, with Robert Friedland’s Ivanhoe Mines cutting CY2026 and CY2027 guidance by 90,000t and 120,000t respectively at its Kamoa-Kakula operation in the DRC.

Guidance cuts are the wild card in the copper market and generally their annual scale is under-estimated.

In a market where the pressure is already on from the demand coming from the electrification of everything, the Ivanhoe cut is not going to hurt the copper price and by extension, the copper equities.

Strategic Energy Resources (SER):

Throw in the expectation that gold will continue to do its thing in response to a weaker dollar and the Trump administration securing interest rate cuts before the midterm elections in early November, it is a grand time to producing or exploring for both copper and gold.

Equities leverage – which works both ways – rests with the juniors, the more junior the better, particularly when much of the exploration effort is funded by big brothers backing home the idea that Tier 1 discoveries are a possibility.

That’s the position that the lightly traded Strategic Energy Resources (ASX:SER) has worked itself into in a copper/gold hunt in under-explored terrain in the Mt Isa and Chillagoe regions of Queensland. 

The stock last traded at a princely 0.9c a share for a $10m market cap (it is in the process of completing a 1-20 share consolidation). The meagre market cap is despite the technical merit of its projects attracting joint ventures with the likes of Fortescue (Canobie, copper/gold)) and Japan’s Sumitomo (Bulimba, gold).

SER also recently added the 100% owned Diamantina copper-gold project, 280km south of Mt Isa/Cloncurry, to its forward program. It’s the one acquired from Anglo American which got some nice hits (161m at 0.4% copper and 0.11g.t gold from 449m) before being distracted from its Australian exploration effort for well-known reasons.

The hit above was from the Elizabeth Springs East prospect with the thinking being it could be part of a broader IOCG system. SER is keen to drill some holes at the prospect and other targets once the north-west dries out.

The Queensland government is kicking in $275,000 in the form a drilling grant which itself   represents a tick of approval for the project’s technical merit.

RRS:

Investors in junior and mid-tier resources stocks looking to take advantage of the apparent disconnect in recent weeks between equity values and historically high metal prices will be on the lookout for “bargains” at next Thursday’s Resources Rising Stars’ Gather Round conference in Adelaide.

Twenty-nine juniors and mid-tier companies are slotted to make presentations at the Adelaide Conference Centre, strategically located as it is across the Torrens River from Adeliade Oval where the AFL’s Gather round kicks off on Thursday night.

Jut about all the sectors are represented – gold, silver, copper tin, manganese, uranium, PGE-nickel and so on. Some will have good stories to tell. Others won’t. Just like AFL teams competing over the four-day footy festival.