MINING FINANCE / INVESTMENT

Which commodities sector to choose? Hottest resources recoveries

The most (and least) favoured subsectors in global mining and oil, during the past eight trading sessions, where nearly USD 700bn in market value has been recaptured (tables included).

JOHANNESBURG - 

Materials (mainly mining) stocks continue to lead a global equity markets recovery, along with bank and energy stocks, and emerging market stocks generally. In the past eight trading sessions, the world's top 20 mining stocks and top 20 oil stocks have regained a total of nearly USD 700bn in value.

Looking at the broader context, the MSCI Barra dollar index for global equities of all kinds is currently 39% off its record highs, seen a year ago, but has bounced up nearly 22% in the past eight trading sessions. The MSCI Barra dollar index for emerging market equities is 54% off its highs, but has bounced by 35%.

The world's top 20 mining stocks are 64% below stock price highs, measured on a weighted average, but have rallied by 48%, from lows, in the past eight trading sessions. The global top 20 oil stocks, by comparison, fell less hard, at 46% down on average, but trade now on averages of 44% above lows.

The overall canvas painted is of markets that remain deeply below euphoric highs, but, equally, of markets that were severely oversold during the most frenzied portion of the global credit markets crisis, triggered by the 15 September 2008 bankruptcy filing of Lehman Bros., the erstwhile Wall Street investment bank.

Looking at regional markets, Chinese stocks remain the most depressed, following the bursting of gigantic equity market bubbles in that country around a year ago. This has limited the upside recovery of many Chinese stocks; exceptions like Petrochina are difficult to find. Zijin, China's leading gold miner, continues to deliver dismal stock price performance compared to its global Tier I peer group.

Russian stocks are also of especial interest, given the exceptionally vicious sell off of equities in that country. Norilsk, one of the world's leading mining stocks, has bounced by nearly 200% from its recent stock price lows; Rosneft, an oil major, has soared an impressive 135% from its recent lows, while Sberbank has hopped 73%, staging one of the world's more dramatic banking stock recoveries.

While Rosneft carries the star rating among recovering oil stocks, LUKoil, another Russian name, has also performed strongly. Other popular names include CNOOC and Chesapeake, while Exxon Mobil, the most heavily capitalised stock of any kind in the world, continues to outperform, relatively, trading just less than 20% below its stock price highs.

Within the global mining arena, nickel stocks have outperformed all competitors during the recovery, thanks to the heavy weighting of Norilsk. After nickel, Tier II gold stocks have drawn wide and enthusiastic investor interest, led by JSC Polymetal (a Russian name), New Gold, Red Back, Eldorado, Iamgold, Peter Hambro, and Golden Star.

Copper stocks have also been in the limelight, led by heavyweights Southern Copper, Antofagasta; Kazakhmys, a diversified stock, has also put in a stellar recovery. Uranium stocks have also been popular during the recovery phase; Uranium One has soared from a very low base; heavyweights Cameco, ERA and Paladin have turned in strong performances. Among developers and explorers, investors have flocked to names such as Alliance Resources, Bannerman, Forsys, Strathmore Minerals, Hathor Exploration, and a good number of names where stock prices had almost evaporated, such as Xemplar Energy.

Coal stocks - outside the Asian region - have also done exceptionally well, led by Consol Energy, New Hope, Felix Resources, Alliance Holding, James River Coal, and Western Canadian; smaller names in the limelight include Waratah Coal, Cockatoo Coal, and Cambrian Mining. Potash stocks have recovered well, led by Uralkali, Mosaic, Arab Potash and Sociedad Química.

Investors have shown more modest interest in stocks specialising in the mining of zinc, molybdenum, tin, platinum, and silver.