COLUMN-Small Australian miners are the canaries of commodity prices – by Clyde Russell (Reuters U.K. – August 4, 2016)

Aug 4 Are the strong gains this year in small Australian resource companies a harbinger of sustainable rallies for both bigger miners and commodity prices in general? Past evidence suggests yes.

The Australian Stock Exchange (ASX) Small Resources Index has jumped 66 percent so far this year, comfortably ahead of both large mining stocks like Rio Tinto, which has gained 10.5 percent, and a broad commodity price indicator, such as the Bloomberg Commodity Index, up 8.6 percent.

What this tells you is that small-capitalisation resource stocks have been the outperformer, but if you believe history is a guide then it is worth noting that the minnows have in the past rallied and peaked prior to major companies and overall commodity prices.

The ASX Small Resources Index gained 210 percent between its post-2008 recession trough in November 2008 to its peak on Jan. 19, 2011.

In contrast, the Bloomberg Commodity Index started its post-2008 rally later, in March 2009, and rose 72 percent to its later peak in late April 2011.

Rio Tinto did surge more than the small-cap index, jumping 251 percent in Sydney between its post-global recession low in early December 2008 and its peak in February 2011. But, similar to the broader commodity price index, the world’s second-largest mining company started its run later than the small-cap index and ended the rally later.

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