Australia is one of my favorite "go to" markets for investors who want to "globalize" their portfolio. It's a safe and stable economy with a lot of potential.
Better yet... it is largely removed from the debt worries plaguing the U.S. and European markets.
But with problems this big, it's hard not to get sucked into the turmoil.
In November 2011... Australia cut its interest rates. This relatively small adjustment sent ripples through the global economy.
That might not sound like big news... Major economies around the world have been slashing rates for the past four years. But this is different. Australia was the first developed economy to raise its interest rates after the global financial crisis in 2008 and 2009.
And it continued to raise rates through November 2010, when it made its last move, bumping rates from 4.5% to 4.75%.
But on Nov. 1, 2011, Australia trimmed rates back to 4.5%. It was the first cut in 2 ½ years.
Better yet... it is largely removed from the debt worries plaguing the U.S. and European markets.
But with problems this big, it's hard not to get sucked into the turmoil.
In November 2011... Australia cut its interest rates. This relatively small adjustment sent ripples through the global economy.
That might not sound like big news... Major economies around the world have been slashing rates for the past four years. But this is different. Australia was the first developed economy to raise its interest rates after the global financial crisis in 2008 and 2009.
And it continued to raise rates through November 2010, when it made its last move, bumping rates from 4.5% to 4.75%.
But on Nov. 1, 2011, Australia trimmed rates back to 4.5%. It was the first cut in 2 ½ years.
The reason? Europe's debt crisis was affecting trade with Asia. Bloomberg reported that China and South Korea were exporting less because of European and U.S. economic woes.
And China is a huge market for Australia.
You are probably wondering why you should care. I have two words for you: resource and opportunity.
What this rate cut meant for investors was this: more exports for Australian companies and more profits for their bottom line.
The resource sector is strong in Australia.
In fact, Australia is going through a mining boom. In late October 2011, BIS Shrapnel said in its report "Mining in Australia 2011 to 2026" that investment in Australian mining could reach $85.7 billion by 2015 or 2016.
In 2011 the estimated investment figures top out at only $48.5 billion, meaning the industry could see growth of nearly 20% a year for the next four years.
When interest rates are cut, the value of the underlying currency drops. After the announcement on November 1, the Australian dollar fell 0.4% overnight. That might not sound like much, but when you're talking about millions of dollars' worth of exports, this difference can add up quickly.
For example, if a buyer wanted to buy $1 million in iron ore, he would pay $4,000 less after rates were cut.
No wonder 80% of the investment capital in Australia's resource projects comes from outside the country. Everyone wants a piece of this pie.
Australia isn't the only fish in the pond, though... Indonesia, Turkey, Brazil and a host of other export countries are all trying to bolster exports. Australia's rate cuts could be justified by needing to stay competitive in the resources sector.
The growth expectations and stable government and economy make Australia very attractive.
And the best opportunities may just be in the smaller companies -- those where $4,000 makes a big difference. The junior mining sector will be a big place for investors over the next three or four years.
JUMEX, or junior mining and exploration companies, can move quickly.
One company worth looking at is Independence Group (IGO:ASX). It is a nickel producer with the Long Nickel Mine in Kambalda, Western Australia. It also owns stakes in six joint ventures across Australia. Plus, it is exploring in five 100%-owned mines.
The company's looking for gold and base metals... and prospects are good.
IGO also has made some strategic acquisitions that have bought it stakes in other joint ventures. Plus, it has strong cash flow thanks to the facts it is actually producing metal... not just searching for it.
These points are key for any investor looking to take a position in a junior mining company. A producing company is almost always safer (from an investment standpoint) than a small exploration company.
Reserve estimates for its exploration projects keep growing, too. Its Tropicana joint venture boosted gold reserves from 5.56 million ounces to 6.61 million ounces. IGO's stake is for 1.98 million ounces of those deposits.
Australia is a hotbed of mining projects, and the interest rate haircut will make exporting cheaper. For junior mining companies, this is great news. Investors could have a field day.
Keep in mind, some of these small miners are great takeover candidates, as well.
If you're looking to take advantage of the Australian mining boom and its role in the currency wars, now's the time to do it. Small-cap companies could offer you a great advantage in this industry.
Happy Investing,
Sara
And China is a huge market for Australia.
You are probably wondering why you should care. I have two words for you: resource and opportunity.
What this rate cut meant for investors was this: more exports for Australian companies and more profits for their bottom line.
The resource sector is strong in Australia.
In fact, Australia is going through a mining boom. In late October 2011, BIS Shrapnel said in its report "Mining in Australia 2011 to 2026" that investment in Australian mining could reach $85.7 billion by 2015 or 2016.
In 2011 the estimated investment figures top out at only $48.5 billion, meaning the industry could see growth of nearly 20% a year for the next four years.
When interest rates are cut, the value of the underlying currency drops. After the announcement on November 1, the Australian dollar fell 0.4% overnight. That might not sound like much, but when you're talking about millions of dollars' worth of exports, this difference can add up quickly.
For example, if a buyer wanted to buy $1 million in iron ore, he would pay $4,000 less after rates were cut.
No wonder 80% of the investment capital in Australia's resource projects comes from outside the country. Everyone wants a piece of this pie.
Australia isn't the only fish in the pond, though... Indonesia, Turkey, Brazil and a host of other export countries are all trying to bolster exports. Australia's rate cuts could be justified by needing to stay competitive in the resources sector.
The growth expectations and stable government and economy make Australia very attractive.
And the best opportunities may just be in the smaller companies -- those where $4,000 makes a big difference. The junior mining sector will be a big place for investors over the next three or four years.
JUMEX, or junior mining and exploration companies, can move quickly.
One company worth looking at is Independence Group (IGO:ASX). It is a nickel producer with the Long Nickel Mine in Kambalda, Western Australia. It also owns stakes in six joint ventures across Australia. Plus, it is exploring in five 100%-owned mines.
The company's looking for gold and base metals... and prospects are good.
IGO also has made some strategic acquisitions that have bought it stakes in other joint ventures. Plus, it has strong cash flow thanks to the facts it is actually producing metal... not just searching for it.
These points are key for any investor looking to take a position in a junior mining company. A producing company is almost always safer (from an investment standpoint) than a small exploration company.
Reserve estimates for its exploration projects keep growing, too. Its Tropicana joint venture boosted gold reserves from 5.56 million ounces to 6.61 million ounces. IGO's stake is for 1.98 million ounces of those deposits.
Australia is a hotbed of mining projects, and the interest rate haircut will make exporting cheaper. For junior mining companies, this is great news. Investors could have a field day.
Keep in mind, some of these small miners are great takeover candidates, as well.
If you're looking to take advantage of the Australian mining boom and its role in the currency wars, now's the time to do it. Small-cap companies could offer you a great advantage in this industry.
Happy Investing,
Sara
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