Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory & buyer's agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

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"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

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Wednesday, 11 September 2013

Dangers of investing in mining towns: Wandoan project scuppered

It's been threatened for some time, and now Glencore Xtrata is to "freeze or divest" the Wandoan project in Queensland, which is hardly a surprise given the weakness of the commodity price.

From SMH:

"Its most bearish sentiments on Tuesday were reserved for  thermal coal, which has been struggling under low prices and high costs.

‘‘Current price levels are unsustainable in the medium term, with close to 30 per cent of seaborne thermal production being cash-cost negative,’’ the company said.

The pessimism will  result in the Wandoan project, a  greenfield thermal coal development in Queensland, being frozen or divested, after it was listed as one of seven Australian coal prospects that were now ‘‘on hold’’.

The $7 billion project had been going through feasibility studies and government approval processes, but its future has  been clouded ever since a coal export terminal was axed in May."

It's a bit awkward for those who said Wandoan would "go ahead and grow exponentially" such as in this Property Observer article.

My advice would be not to place any bets at all on the thermal coal industry right now.

The thermal coal spot price fell in the last fortnight to its lowest level in 4 years at well below $80/tonne, and prices are way, way, below their post-GFC highs of 2011 when they were at above $135/tonne. 

While we're on the subject, coking coal has fared even worse.

Thermal coal production costs in Australia are above $75/tonne, so steer well clear. 

Anyone with even a rudimentary knowledge of the mining industry will tell you that without a substantial bounce in the commodity price mega-projects will never attract green ticks while margins remain so slender.

Even more awkwardly, the same Property Observer article also said that BHP's proposed Olympic Dam expansion was "already underway" when in fact it was canned only 3 months later.

Be very, very careful about buying properties in remote region 'hotspots' based upon marginal resources projects which could then get axed.

And people are talking about interest rate hikes. Really?