Miners bruised, but standing firm

Since 3 June, when global mining stocks touched eight-month highs, the heaviest net selling has been seen among listed primary silver miners, followed by specialists in nickel, copper, potash, gold, and platinum.

JOHANNESBURG - 

Resources stocks, measured by changes in the weighted value of 1,025 names listed around the world, touched eight-month peaks on 3 June, and were then heavily battered until a possible trough was made on Tuesday this week. These stocks, including oil names, are currently worth an aggregate of USD 3.3 trillion; the top 100 most valuable miners are currently valued at an aggregate of USD 1.3 trillion. 

The sell off has been consistent with weaker metals prices across the board, which may also have made a possible trough two days ago. Apart from broader negative movements in western stock markets, it may also be worth noting the traditional quieter Northern Hemisphere period insofar as demand for raw materials is concerned. 

The performance of the world's miners remains encouraging enough; where the very broad MSCI world equities USD dollar index has now bounced 39% above lows seen a few months ago, the top 100 mining stocks are currently 122% above lows, seen earlier, during the closing months of 2008. Mining stocks have more recently been given special support from the price performance of Chinese and also Indian miners, reflecting the very bullish behaviour of broader stock markets in those countries. 

Miners have also received additional support from the powerful recovery in the Baltic Dry Shipping and Baltic Capesize Shipping indices, which are taken by some as a leading indicator of the supply-demand equation for bulk materials, such as coal and iron ore, on the high seas. 

Among currencies, the dollar continues to trade in a weak to neutral band. Over the past few weeks, so-called commodity currencies have been sold off. Measured on a 12-month basis, the Chilean peso ranks as the best performing of these at this stage, hurting domestic currency receipts of miners in Chile, followed by the Philippine peso, the rand, the Canadian dollar, New Zealand dollar, Australian dollar, Kazakhstan tenge, Brazilian real, Norwegian krone, Mexican peso, and Russian ruble. Troubled by weaker, but somewhat recovering oil prices, the Russian ruble ranks as one of the world's poorest performing currencies. 

Among metals, gold bullion retains its best relative price performance record, with few real rivals; for investors in equities, however, the yellow metal has now been trading in a relatively narrow band for more than a year, and is yet to make any convincing assault on its March 2008 record. 

Among major base metals, copper continues to impress; few genuine copper diggers have cash costs higher than USD 1.25/lb; prices has been well above USD 2.00/lb for some months now. Aluminium continues to disappoint as major producers outside China continue to resist the pressures to make genuine cutbacks in production. Some specialist listed aluminium producers rank among the world's worst performing stocks, with a number, such as Century Aluminium and Vimetco, trading more than 90% below 12-month highs. 

Nickel prices have bounced well from USD 4.01/lb to over USD 7.00/lb, but look miserable compared to the near-USD 25.00/lb prices seen in mid-2007. Zinc and lead prices suffered less savaging on the way down; price recoveries have inspired some excellent price performance among specialist equities such as Breakwater, CBH Resources, Hudbay Minerals, Shenzhen Zhongjin, and Volcan. 

Among listed mining subsectors, the top performances over the past 12 months have been generated by specialist primary silver miners, led a always, by Fresnillo, and followed by zinc, copper, tin, gold, and uranium stocks. The least popular groupings include oil sands, oil, platinum, non-Asian coal, diamonds, potash and aluminium. 

Since 3 June, when global mining stocks touched eight-month aggregate highs, the heaviest net selling has been seen among listed primary silver miners, followed by specialists in nickel, copper, potash, gold, and platinum.

On 25 May, diversified miner, Russia's Norilsk, freshened memories of just how bad the damage has been for nickel miners. Norilsk posted a loss of USD 555m for 2008, compared to a profit of USD 5.3bn for 2007. Some huge transactions were seen at the top of the nickel cycle, which peaked early during the 2002-2008 commodities "supercycle". These included USD 18.8bn paid by Xstrata for Falconbridge in 2006, USD 18.9bn paid by Vale for Inco in 2007, and USD 5.8bn paid by Norlisk for LionOre, also in 2007. All three deals were for cash, and may be graded as somewhat expensive, given today's metrics.

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

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