Technology might be one of the key drivers for 21st century, but what drives technology? Innovation, yes, but central to the practical use of technology is the commodities that make it possible. India is going to afford Teslas via industrialisation, which enriches society. This can only happen via the likes of Rio Tinto (RIO), Fortescue Metals (FMG) and Alumina Limited (AWC), producers of iron ore for steel and alumina for aluminium and which also happen to be among the stocks we cover in this issue.

We believe that iron ore is well supported at around US$100 a tonne for several reasons. First is that steel making remains the key to industry, which is forging ahead in the key markets of China and India. Second, there are only four big exporting iron ore producers globally, Rio Tinto (RIO), Vale S.A. (VALE:NYSE) and BHP (BHP) are at the top, followed by Fortescue Metals (FMG). Third, it’s difficult for small operations to survive because it’s capital intensive and massive infrastructure is needed. Simandou in West Africa has very high grades, but the problem has always been a lack of transport. The billions invested in iron ore development comes from the majors and is aimed at simply sustaining production, not growing it.

Alumina is the key ingredient to aluminium (roughly two tonnes of alumina for one tonne of aluminium). Being a lightweight metal, there will be increasing demand for it in order to reduce greenhouse emissions in transport, whether its cars, trucks or trains. On the supply side, alumina refineries are very large and there aren’t many. This puts Alumina Limited (AWC) in the seat as one of the key producers outside of China, with among the lowest refining costs in the world due to the low-cost gas in WA.

You need resources in your portfolio because there are always things happening in this sector. There are always new opportunities among the different commodities; there are new projects and metal prices move around dictating this. The fund managers that don’t invest in mining invariably underperform over time.

Moreover, mining isn’t a fad like some technology can be. Everyone knows that 150m tonnes of iron ore is produced every year.

Like most Blue Chip stocks, there is cyclicality in the resources space, hence the importance of working out the fundamental value. Our valuations are based on long-term price assumptions of commodities. The idea that you could buy BHP at $30 and sell at $50 worked for many years… until it didn’t. The spinoff of BHP’s energy assets into a new vehicle, Woodside Energy (WDS) has changed the game.

One of the ways you have to get on top of portfolio is by identifying opportunities to take profits and making trades.

The key to buying and selling cyclical stocks is working out the core value. Flight Centre (FLT) is covered in this issue and is a good example (although not a mining stock, I admit). We sold FLT at $44 pre-Covid, where we though its worth was $25. After Covid, you’ve had dilution and earnings on the back burner as the company racks up losses. We got back in at $18 and now it’s $21.50. We’ve made over 10%, but we’re playing for 20-30% because travel is special.

If you don’t know what value is, you rarely get it. We’re called Blue Chip Value for a reason.