Mining Analyst Peter Major on why he believes the commodity supercycle will continue in 2022

The JSE Industrial Metals and Mining Index has seen a remarkable upward trend, surging over 5% since the beginning of the year and outpacing gains in the broader equity market. This positive momentum has left many pondering what lies ahead for the mining sector in 2022. Peter Major, Director of Mining at Mergence Corporate Solutions, believes that the current surge in metal prices signifies the continuation of a true supercycle rather than a mere average one. Major notes that the persistence of inflation, evidenced by consecutive high figures in the United States, is a key driving force behind the buoyant metal prices. As mining costs inevitably rise, fueled by factors like government regulations and wage demands from unions, companies are feeling the impact on their cash flows. The lack of new mines coming online coupled with robust demand suggests that metal prices are unlikely to plummet anytime soon. Major even suggests that metals may outperform equities in the investment sphere going forward, despite mining stocks currently trading at low valuations due to perceived risks in price declines. He highlights the underperformance of gold mining companies, despite steady gold prices, as evidence of the inflationary pressures mining firms face. He predicts a strong outlook for coal, citing the slow adoption of alternative energy sources globally. Tungela, a company benefitting from coal prices, is expected to continue its upward trajectory given the delayed transition to cleaner energy in South Africa. Major underscores the need for coal in the energy mix for the foreseeable future, projecting steady growth for coal companies like Tungela in the next few years. When considering investment opportunities, Major advises staying invested in operating mining companies rather than seeking new ventures due to the challenging investment climate. The dearth of new projects in South Africa shifts the advantage towards existing producers who can capitalize on current operations without fear of new competitors. Major's top picks for 2022 include platinum producers such as Sibanye and ARM, which he views as undervalued and potentially lucrative investments in the ongoing commodity supercycle. This strategic approach aligns with the expectation of sustained high commodity prices in the near future. The mining sector's resilience amidst global economic shifts underscores its attractiveness as an investment option, especially in light of rising inflation and strong demand for metals.