Putting the boom in context, eminent historian Geoffrey Blainey tells the Australian Financial Review: "This is perhaps the great mining period in Australia's history. The very recent boom in mineral prices might end soon, but minerals - old and new - will probably remain crucial to Australia's standard of living at least in the next dozen years."
Higher resources prices have driven the broader Australian Securities Exchange to new highs, leaving some industrials stock prices lagging by comparison, writes Stewart Oldfield for the Australian Financial review.
Driven by the output and price boom, the benchmark S and P/ASX 200 Resources index has almost tripled over the past six years.
Since the panic days of March 2020, the listed ASX industrial sector has risen 45% but the resources sector has gained twice that amount and is just shy of its 2008 record.
"In iron ore and coal, we are the world's leading exporters. In 2022 we were second to China as the world's great gold producer. We mine far, far more gold annually than in any year of the 19th century," adds Blainey. "I think we rank about second as an alumina exporter. And so on."
The most recent gains have been attributed to the reopening of the Chinese economy, while the price of gold has benefited from a weaker US dollar.
Over the years the relative size of the Australian resources and the industrial sector has fluctuated considerably.
As a proportion of the total market, the resources sector - excluding energy stocks - has doubled in the past seven years from about 13% to 25%. Add back the energy stocks and the proportion is 33% of the broader market.
Commodity-based companies are enjoying the highest profit margins of more than 25% at an aggregate level - the highest in more than 20 years as commodity price growth outpaces growth in the cost of production.
Lithium plays such as Allkem, IGO, Mineral Resources and Pilbara Minerals have seen their market capitalisations multiply between three and seven times as the boom has gathered pace. They are set to generate annual cash flows of about $15 billion in aggregate- well above what any sector in Australia outside iron ore and banking has produced.
But professional investors remember that after the last resources peak in May 2008, the sector shed 50% of its value in the following six months.
"Investors should be concerned about the prospect of elevated cost inflation against a backdrop of declining commodity prices," says Hasan Tevfik, senior analyst at MST Marquee.
Ray David, a portfolio manager for Australian equities at Schroders, notes that commodities are called commodities for a reason.
"During boom cycles, investor exuberance can propel commodity prices to eye-watering levels, which can then lead to a flood of new supply as investors chase top-of-the-cycle profits.
"Often it is not the demand forecasts that can catch investors left-footed, it's the impact of supply that causes the swings in commodity prices and investor anxiety. The reality is that high prices are a cure for high prices, and markets can often be self-destabilising before they go back to equilibrium.
Tim Johnston, deputy head of Australian equities at value investor Tyndall Asset Management, says it is important to look at the prospects of each commodity separately. He notes that on a forward price-earnings basis the resources sector remains more conservatively priced than in May 2008.
"There is a pretty strong narrative that a number of metals are going to have a much better future than they have had in the past and the obvious ones that fall into that bucket are the likes of copper and lithium," he says.
"The cash coming back to corporates that are already in production is enormous - certainly well north of whatever anyone would have thought two years ago.
"We see value in a number of names we hold in the oil sector as well as in the lithium and mineral sands industries. We see less value in the large iron ore producers."
However, Tyndall also sees value and improving prospects for some previously unloved industrials, justifying their inclusion in its diversified portfolio.
Childcare play G8 Education is trading at less than half the share price of four years ago as extended labour disruptions compounded pre-pandemic woes.
But Tyndall sees G8 on a path to improving profit margins that should underwrite a share price recovery.
The general insurance sector - and QBE and Suncorp in particular - are beneficiaries of rising interest rates and premiums.
Tyndall remains cautious about retail stocks exposed to discretionary spending habits but is more confident about non-discretionary retail plays such as Coles.
At Schroders, David says his firm maintains an overweight position in Alumina because of its status as a low-cost producer and a more certain commodity price outlook.
"In an inflationary and higher interest rate environment where return hurdles are increasing, the value of sunk infrastructure and real assets will increase.
"At the same time, we believe companies trading on high price-earnings valuations where the market valuation is heavily skewed to the terminal value will be prone to further derating since investor return requirements have increased markedly as a result of central bank regime change. Consequently, the fund remains underweight healthcare, technology, and REIT (real estate investment trust) sectors."