Following the smart money

The normal suspects are in good demand, but bargain hunters are now also snapping up oversold subsectors such as platinum and potash.

JOHANNESBURG - 

The majority of stock market indices around the world are happily trading at or around 12-month highs, and sympathetic to that, most equity subsectors are up there as well. The broader resources sector is no exception, although oil stocks continue to lag. For some good time, gold equities have grabbed the headlines, as dollar gold bullion has made it from one record to the next, and from one headline to the next.

The forward path of the dollar is the single biggest call for investors in commodities, and resources equities. For now, if there is any issue with dollar gold bullion, it may be that the metal's price fell the least, from around mid-2008, when most commodity prices collapsed in the face of the so-called global markets crisis. Copper, a major base metal, fell from just above USD 4.00/lb to as little as USD 1.28/lb in December 2008, but has since recovered sharply, in line with most commodity prices, and stocks, to current levels around USD 3.23/lb. There was no bona fide copper miner which was not still making cash profits, at least, at USD 1.28/lb; at current prices, the tills are jamming with happy heavy metal.

Listed gold stocks have done exceptionally well, but as the metal price has continued to weave its way upwards, global portfolio flows have been increasingly active in seeking undervalued stocks, of all kinds. The "value gap" over time, arising between resources equities, and underlying commodity pricing, provides any number of opportunities. While net investor portfolio flows into mining stocks have been positive for close on a year, there has been discernable churning between different subsectors, in line with traditional investor behaviour.

There has been a broad correlation with the extent of changes in underlying commodity prices; since early October, following a period of profit taking in mining stocks, the heaviest flows have been attracted by the relatively small primary silver mining sector, followed by specialised copper miners, diamond names (a very small global sector, with investable market value of just USD 2.8bn), followed by specialists in nickel, iron ore, zinc, aluminium, and coal stocks outside the Asian region.

At this point, there continues to be very strong demand for major diversified miners, as seen in the pricing for BHP Billiton, Vale, and Anglo American. Demand for gold equities remains strong, but increasingly selective; among major gold diggers the current preference is for Barrick, Gold Fields, Goldcorp, and AngloGold Ashanti. There are scores of smaller gold stocks that have remained in good demand, and some tried favourites have returned to the front, pushing to fresh highs for the year, such as Novagold and Greystar.

Silver stocks continue to feature, as seen in demand for the likes of S. Métallurgique d'Imiter, Pan American Silver, Silver Wheaton, JSC Polymetal, Hecla Mining, and Silver Wheaton, but there has been some mild profit taking of late in London-listed Fresnillo, the world's biggest primary silver miner, and one of this year's starring mining stocks from any subsector.

The cash flow generating power of copper stocks, especially when gold byproduct is mixed in, continues to attract very strong investor attention, led by Freeport-McMoRan, the world's biggest publicly traded copper miner. There are scores of other names leading the copper equities charge, such as Taseko, Nevada Copper, Palamin, and Pan Australian. Evergreen copper beacon Antofagasta is up there with the best.

More recently, portfolio flows have moved strongly towards selected platinum counters, after the subsector was thoroughly bashed up over the past year or so. Names that feature here include Northam, Eastplats, and Anglo Platinum, the world's leading platinum miner.

More surprisingly, perhaps, has been recent strong interest in potash stocks, which were also heavily battered in the troughs seen towards the end of 2008. Names that feature here include ICL, Silvinit, Mosaic, and Agrium.  There is also good demand for coal stocks in the Asian region, as seen in the pricing for the likes of Banpu, Indo Tambangraya, Mongolia Energy, Tambang Batubara, Henan Shenhuo, Yanzhou Coal, and Adaro Energy.

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List presentation I've been reading your comments for a long time and I like them. I have one question though regarding the presentation of your list's for example today's WORLD'S 100 MOST IN-DEMAND MINING STOCKS. I do not understand the order of which the stocks are . .more listed. To me, it's more interesting studying a list if it is sorted for instance by most gain, market cap or in today's case by demand. Just a reflection /Niklas Kluge . .less by Niklas Kluge on December 04 2009, 03:36 Find this comment inappropriate? Report it

Ranking Greetings Niklas - the in-demand ranking is simply on which stocks (worth at least USD 20m) are trading highest, relative to 12-month rolling levels. Thus a stock that has gained, say, 1,000% over the past year but is trading, say, 5% below its . .more 12-month high, would not make the list above. . .less by Barry Sergeant on December 07 2009, 09:35 Find this comment inappropriate? Report it

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