Why it’s time to buy depressed miners
Prices for industrial metals and coal remain low. Miners of copper, iron ore, metallurgical coal and energy coal are oversold.
While these stocks rallied in October, this was primarily due to improved sentiment regarding a Eurozone solution. It did not address the global macroeconomic trends or the fundamental supply – demand imbalance. BlackRock calls this a “massive” opportunity to invest in miners.Depressed Prices, Depressed Stocks
On October 4th Seeking Alpha published an article of mine entitled, “Is This A Good Time To Buy Depressed Copper Miners?” After a month’s passage of time and continuing evaluation of the fundamentals I now confidently assert, “It’s Time to Buy Depressed Miners!” By that, I mean miners of iron ore, thermal and coking coal as well as copper. Power generation requires copper and it is the best conductor for the cables and wires that transmit it.
It is essential to the manufacture of consumer electronics and automobiles. In a large process manufacturing operation, like a pulp and paper mill, there might be 10,000 electric motors, all made with copper windings. Copper’s uses include construction for wiring and for plumbing. Much of the earlier article presented information that supported the view that, indeed, it was a good time to buy copper miners. Allow me to summarize the key points:
Of the S&P 500 market sectors, the largest loser in September was Basic Materials, the sector that includes miners. Basic Materials was down 23% YTD with only Financials having a larger loss for the nine-month period at 24%.
Copper, which reached a record high of $10,190/tonne on February 14 of this year, was down 30% to $6,975 on September 30, a one-year low. The larger copper mining companies were down 30% to 50%.
Besides copper, major mined products are iron ore, used with coking (metallurgical) coal to manufacture steel and thermal coal used in industrial boilers and in huge quantities for power generation. Some miners, such as US based Freeport-McMoRan Copper and Gold (FCX) and Southern Copper Company (SCCO) are primarily copper miners who benefit from minerals often found with copper: silver, gold, and molybdenum. Teck (TCK) is a diversified miner and Canada’s largest. It focuses on coal, copper and smaller amounts of several minerals.
Other miners such as Australia based BHP Billiton (BPH), the world’s largest miner with a market capitalization of over $220B, mine a variety of products such as thermal coal, energy coal, copper, manganese, petroleum (oil and gas), aluminum (bauxite), lead, zinc and nickel. Vale (VALE), the Brazilian miner and Rio Tinto (RIO), another Australian miner, are in this category. ADRs of the last three trade on the NYSE. Ivanhoe Mining (IVN) is a Vancouver exploration and mining company involved with RIO Tinto at the Oyu Tolgoi copper-gold-silver project located in southern Mongolia in the Gobi Desert.
While these stocks rallied in October, this was primarily due to improved sentiment regarding a Eurozone solution. It did not address the global macroeconomic trends or the fundamental supply – demand imbalance. BlackRock calls this a “massive” opportunity to invest in miners.Depressed Prices, Depressed Stocks
On October 4th Seeking Alpha published an article of mine entitled, “Is This A Good Time To Buy Depressed Copper Miners?” After a month’s passage of time and continuing evaluation of the fundamentals I now confidently assert, “It’s Time to Buy Depressed Miners!” By that, I mean miners of iron ore, thermal and coking coal as well as copper. Power generation requires copper and it is the best conductor for the cables and wires that transmit it.
It is essential to the manufacture of consumer electronics and automobiles. In a large process manufacturing operation, like a pulp and paper mill, there might be 10,000 electric motors, all made with copper windings. Copper’s uses include construction for wiring and for plumbing. Much of the earlier article presented information that supported the view that, indeed, it was a good time to buy copper miners. Allow me to summarize the key points:
Of the S&P 500 market sectors, the largest loser in September was Basic Materials, the sector that includes miners. Basic Materials was down 23% YTD with only Financials having a larger loss for the nine-month period at 24%.
Copper, which reached a record high of $10,190/tonne on February 14 of this year, was down 30% to $6,975 on September 30, a one-year low. The larger copper mining companies were down 30% to 50%.
Besides copper, major mined products are iron ore, used with coking (metallurgical) coal to manufacture steel and thermal coal used in industrial boilers and in huge quantities for power generation. Some miners, such as US based Freeport-McMoRan Copper and Gold (FCX) and Southern Copper Company (SCCO) are primarily copper miners who benefit from minerals often found with copper: silver, gold, and molybdenum. Teck (TCK) is a diversified miner and Canada’s largest. It focuses on coal, copper and smaller amounts of several minerals.
Other miners such as Australia based BHP Billiton (BPH), the world’s largest miner with a market capitalization of over $220B, mine a variety of products such as thermal coal, energy coal, copper, manganese, petroleum (oil and gas), aluminum (bauxite), lead, zinc and nickel. Vale (VALE), the Brazilian miner and Rio Tinto (RIO), another Australian miner, are in this category. ADRs of the last three trade on the NYSE. Ivanhoe Mining (IVN) is a Vancouver exploration and mining company involved with RIO Tinto at the Oyu Tolgoi copper-gold-silver project located in southern Mongolia in the Gobi Desert.
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