From Tuesday's Globe and Mail Last updated on Tuesday, Jul. 21, 2009 04:20AM EDT

The volatility of the base metal mining sector can be unnerving, but once there is a global recovery, share prices of the mining companies can climb a lot higher.

"They have rallied in anticipation of a global economic recovery," said Paul Taylor, the chief investment officer for BMO Harris Private Banking. "We are at the inflection point."

The main driver of metal prices so far has been the strong demand from China. The strength in metals, which are priced in U.S. dollars, is also being attributed to the decline in the greenback.

And now with signs that the U.S. economy might begin a recovery, especially in housing and the automotive sectors, prices are receiving yet another boost

It's not only the prospects of rising demand that is helping the rebound in metal prices. It will be increasingly difficult for mining companies to expand and develop new projects because of their capital spending cutbacks and the still relatively low metal prices caused by the credit crisis and continuing recession, Bart Melek, global commodity strategist for BMO Nesbitt Burns Inc., said in a report to clients yesterday.

Zinc is currently trading at about 74.5 cents (U.S.) a pound. Just over two years ago it was about $1.85 a pound.

Copper is trading at a nine-month high of about $2.40 a pound, but it remains down dramatically from $4 about a year ago.

"If we get a global economic recovery, we will go meaningfully higher," BMO Harris's Mr. Taylor said.

"We had zero base metal exposure going back three months ago in our core portfolio," he said. "We have been deliberately building it up." Recently he has bought Teck Resources Ltd. and Lundin Mining Corp.

"We are definitely of the view we will have a global economic recovery and will increase our exposure to the sector as we move forward," Mr. Taylor said.

"We have looked at whether we have to buy a non-Canadian mining company to get mineral exposure," he said. For now, BMO Harris Private Banking will probably stick with a basket of Canadian mining companies.

"There's been a lot of volatility in the base metal prices, but if you look at the cost of new production and where the new mines are located, you have to be interested," said Norman MacDonald, vice-president and portfolio manager with Invesco Trimark Ltd. The new mines are low grade in politically challenging locations, he said. "New supplies are going to be tougher and tougher to bring on."

Among the Trimark mining holdings are Inmet Mining Corp. (copper and zinc), FNX Mining Co. (nickel and copper) and mining giant Vale SA.

The major copper and zinc mining companies in Canada include First Quantum Minerals Ltd., HudBay Minerals Inc. and Inmet; the nickel producers include FNX Mining and Sherritt International Corp.; and Teck is a diversified company.

Many investors will also want to look at the global giants for diversification, such as BHP Billiton Ltd., Vale, Rio Tinto PLC, Southern Peru Copper Corp., Freeport-McMoRan Copper & Gold Inc. and Alcoa Inc."