Case Study: Navigating Market Volatility in Australian Mining Stocks

Market Context

Between 2021 and 2023, the global shift toward a low-carbon economy fueled demand for critical minerals like lithium, essential for electric vehicles (EVs), renewable energy technologies, and advanced infrastructure. Australian mining companies such as IGO, PLS, and MIN thrived during this period, with their stock prices soaring. However, by late 2023, the market began to correct. Weaker demand from China, oversupply concerns, and broader economic headwinds triggered significant declines in lithium prices, leaving advisers and investors with tough choices:

• Stay defensive with cash and bonds, potentially missing opportunities for further upside.
• Double down on mining equities, but risk further losses in a highly uncertain environment.

The Solution: Smart-Entry Note

To navigate this uncertainty the adviser collaborated with Stropro's Investment Desk to design a Smart-Entry Note linked to these miners: IGO, PLS, and MIN.

Key Features:

• Reference Assets: IGO, PLS and MIN
• Term: 13 months
• Regular Income: Investors received 17.5% p.a. in coupons, paid monthly.
• Smart-Entry Level: 20%. If the reference assets declined 20% or more, investors would buy the worst performer at 80% of its initial price (i.e., a 20% discount).

Essentially clients could generate an enhanced level of income and if the market sold off further, they could take their initial capital and enter at a significant discount to current prices.

The Outcome

Over the year, the anticipated challenges materialized: lithium prices dropped significantly, and the performance of the reference assets suffered.

Underlying Performance:

• IGO: -43.37%
• MIN: -36.32%
• PLS: -34.76%

Despite the downturn, the Smart-Entry Note outperformed the market significantly and buffered client portfolios from significant downside risk.

Performance Comparison

Direct Investment Scenario:

• Initial Investment: $100,000 equally in IGO, PLS, and MIN.
• Income Received: None.
• Return on Investment: -38.15% loss

Australian Miners Fixed Coupon:

• Initial Investment: $100,000 equally in IGO, PLS, and MIN.
• Total Coupons Received: 18.96% (17.5% p.a.) over 13 months.
• Return on Investment: -10.25% 
• Stock Purchase at a discount: Clients bought IGO at 80% of its initial price, and hold 25% more shares if they were to purchase on the start date of this investment.

How the Adviser Responded to this Outcome

At maturity, the mining sector was still under pressure, with lithium prices near cyclical lows and supply-demand imbalances persisting. However, the long-term thesis for critical minerals remains strong, driven by the global transition to clean energy. Recognising this opportunity, the adviser, in collaboration with Stropro, rolled the remaining capital 89.75% (-10.25%) into a new Smart-Entry strategy designed to align with evolving market dynamics.

Key Features:

• Reference Assets: PLS and MIN only. 
• Term: 12 Months
• Regular Income: Leveraging heightened volatility, an enhanced income of 19% p.a. paid monthly. 
• Smart-Entry Level: -20% (80%) (Investors could enter shares at discount if they continued to fall, buffering losses.) 

Click here to learn more.

Last year, the Stropro team rolled out AUD $100m+ in smart-entry notes for wealth advisers across Australian and global equities. The versatility of these structured investments, to optimise for your desired level of income, , smart-entry level and equity exposure, ultimately build robustness in portfolios than traditional equity investing. 

Please feel free to share with us your ‘Smart-Entry Note’ idea. We are also happy to look at your current exposures and optimize trades for you. 

For further information:

• Brent Paradise, Investment Consultant, Stropro, +61 434 031 200, Brent@stropro.com
• Louis Gordon, Investment Consultant, Stropro, +61 434 031 200, Louis@stropro.com