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Stronger commodity prices and weak A$ have re-activated investor and corporate interest in the resources sector. The recent takeover of North Ltd by RIO and subsequent offers for Ashton and QCT Resources by De Beers and BHP/Mitsubishi respectively highlight the increased corporate interest in this sector. Further corporate activity is expected over coming months. The weakness in the A$ has made resource companies very attractive for the following reasons:

n The majority of commodities are priced in US$, which means company revenues are boosted significantly from a weak A$. For example A$ oil prices are at record highs and copper prices have recovered strongly in A$ terms.

n The global trend for companies within industries to merger to improve efficiencies has spread to include the mining industry. Given Australia’s high quality mining assets and weakness in the A$ makes Australian assets very attractive to offshore investors.

As discussed in the August monthly further evidence points to a slowdown in US economic growth. This has increased significantly the likelihood of a soft landing in the US and in world industrial production growth (IP). For resource equities the issue remains will stronger growth in Japan and Europe offset a slowdown in US IP resulting in a soft landing for world IP. We believe this is now the most likely outcome.

On the supply side many commodities are in tight supply. LME stockpiles for nickel are at their lowest level for 9 years, aluminium at near decade lows, while copper stocks are declining rapidly and are currently near two-year lows. Oil prices remain firm well above US$25/lbb.

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