BASE METALS

Copper is king, for now

Over the past month, most favoured mining equity sectors copper, nickel and aluminium have overshadowed gold, but platinum equities are on the bubble.

Author: Barry Sergeant
Posted: Friday , 27 Mar 2009

JOHANNESBURG - 

There's no question that over the past month, listed copper stocks have attracted the strongest positive investor portfolio flows in the mining space of global equity markets, with leading lights including the likes of Yunnan Copper, Jiangxi Copper, and copper-gold names First Quantum and Pan Australian.

The MSCI Barra Dollar Index for all global equities has risen by a stiff 23% from multi-year lows seen earlier this month; listed copper stocks, by contrast, have bounced by an impressive 143% over a slightly longer period. Measured on a 12-month basis, listed gold stocks, where AngloGold Ashanti ranks as the top performing Tier I name, continue to deliver the best composite price returns, beaten only by the far smaller listed silver miner grouping.

Measured on the same basis, copper stocks have provided the third best return. The world's top 100 mining stocks by value have bounced by 93% from lows, measured on a weighted basis, led by BHP Billiton, the world's biggest diversified resources stock, which has doubled from it lows as seen in its London stock price.

While the past month has witnessed positive global portfolio flows into practically all equity subsectors, as indicated by the impressive bounce in the MSCI Barra Dollar Global Equities Index, the pecking order among miners is assuming an interesting shape. Copper miners have been supported by the rise in underlying metal prices; after topping out at $4.08/lb in mid-2008, copper fell to $1.28/lb and has since risen to current levels around $1.80/lb.

A number of analysts have observed that even when copper prices were at troughs a few months ago, fewer copper miners were out of cash than in many other mining subsectors. Beyond copper, this forced radical supply reactions ranging from mine closures at worst to severe cost cutting at best. The dynamics for each commodity remain idiosyncratic, as ever, but the smart money is heavily at work.

Copper prices are regarded by a number of investors as a highly accurate proxy on the health, or otherwise, of the world economy. At the fundamental level, China continues to rank as by far the biggest consumer of the metal, as is the case for a number of other commodities.

Following in order after copper as the most favoured mining equities subsector over the past month are found, in order, nickel, where Norilsk, by far the biggest stock in the subsector, has bounced by nearly 100% from lows; there have also been impressive comebacks by FNX Mining, Mirabela Nickel, and Jien Nickel; Aneka Tambang, the fourth biggest nickel producer, has seen a 50% bounce in its stock price.

 

Aluminium names have also been attracting attention, despite the lacklustre aluminium metal price; leading lights here include Yunnan Aluminium, Madras Aluminium, and Henan Shenhuo. Silver stocks are next on the list, led by spectacular price performances by, in particular, Fresnillo, the biggest primary silver producer, and Silverstone. Next on the list are the three Tier I iron ore miners, Vale, Rio Tinto, and BHP Billiton which, however, also each rank as diversified major miners.

 

This category is followed by uranium, where price action in a relatively small subsector has been primarily driven by the hugely successful story of Extract Resources at its Rössing South discovery in Namibia. This has not only taken Extract's stock price to record levels (a rarity in any stock in the world in the current environment), but also fanned significant ongoing support for a number of other uranium stocks on the ground in Namibia, such as Bannerman.

 

The past month has also witnessed strong investor interest in platinum stocks. Platinum prices crashed by way more than half from records around $2 225 an ounce during 2008 to around $744 during October and have since cruised upwards to potentially disaster-saving levels around $1 150 an ounce, the best seen since September.

 

Platinum sibling metal palladium has shifted up by 38% from its lows to around $221 an ounce; rhodium, another sibling, has been driven by insane speculators to around $10 000 an ounce during 2008, is trading around $1 000 an ounce. The apparent turn of fortunes for PGM (platinum group metal) prices has been sufficient, to date, for Aquarius Platinum to boldly announce this week an intended rights issue and an intended sale of convertibles, along with confirming its intention to complete a friendly takeover of Ridge Mining, which is close to converting from developer to producer.

 

Lesser favoured subsectors over the past month, which, however, attracted positive inflows include potash, molybdenum, oil, gold, coal, diamonds, and zinc.

 

GLOBAL LISTED RESOURCES STOCKS
Composite weighted 12-month net price gains/losses
		Main	∆ on one	IMC*	Stock
		result	month	USD bn	sample
Copper stocks		83.9%	93.2%	65.1	87
Nickel stocks		17.9%	67.4%	27.2	32
Aluminium stocks		33.4%	56.9%	52.8	15
Tier I iron ore stocks**		40.4%	55.4%	81.5	3
Uranium stocks		52.7%	54.5%	16.2	117
Uranium producer stocks**		37.4%	53.6%	11.4	5
Tier I platinum stocks**		15.2%	52.3%	27.3	3
Platinum stocks		13.5%	49.2%	35.0	52
Silver stocks		140.9%	48.6%	13.9	43
Iron ore stocks		25.2%	48.1%	128.4	84
Mining majors**		22.5%	41.2%	586.0	20
Tier II iron ore stocks**		-8.0%	39.8%	36.7	16
Tier I coal stocks (non-Asia)**		-7.9%	36.0%	39.8	30
Potash producers		22.4%	35.8%	81.1	12
Tier II gold stocks**		185.6%	34.8%	41.3	18
Tier I gold stocks**		103.8%	31.1%	170.9	13
Molybdenum stocks		24.3%	29.9%	9.0	20
Oil stocks		-6.4%	29.3%	1811.7	47
Gold stocks		116.8%	28.6%	234.5	247
Coal stocks		-8.1%	22.2%	226.2	122
Diamond stocks		-44.1%	20.4%	0.9	41
Oil sand stocks		-7.0%	18.8%	31.2	15
Tin stocks		38.3%	15.0%	2.2	13
Tier I coal stocks (Asia)**		-8.0%	14.7%	99.4	20
Zinc stocks		-5.1%	6.9%	12.6	16
Silver ETFs		27.6%	-11.0%	3.9	3
Gold ETFs		29.0%	-15.2%	44.7	9
TOTALS				2748.0	963
* Investable market capitalization
** IMC counted in other sub-sectors
Sample is 963 listed companies.
Source: Analysis by Barry Sergeant
Note: All samplings are operating companies, with the exception of ETFs
Note: the 12-month price gain/loss calculation assumes
1. A weighted amount of USDs are invested in each of 963 stocks
2. At the stock's lowest price in the past 12 months, and
3. That each stock is still held at the current date.