Look where the money's going now - world's top 100 mining stocks

Some froth, but led by silver and copper stocks, investors are chasing quality names.

Author: Barry Sergeant
Posted: Thursday , 19 Nov 2009

JOHANNESBURG -

With the odd exceptions here (Japan, Korea) and there (Turkey, Ireland), most country stock markets are trading at or close to 12-month highs, as reflected in the buoyant levels of leading indices such as the MSCI world equities USD index, the Dow Jones Industrial, DJ Stoxx 600, and even China's CSI 300, which experienced a sharp series of corrections just months ago.

The world's 100 biggest mining stocks, measured by value, are pretty much running apace with the broader story on general optimism that stability has largely returned to markets, and that profits and cash flows are returning to mean reversion, after the severe corrections in most commodity prices that set in around mid-2007. Commodity prices continue to recover, not least as seen in current dollar gold bullion.

A series of discernible trends are apparent from the pricing of mining equities subsectors, where, over the past 12-months, top returns have been delivered by specialist silver, and also copper, miners. In the broader resources sector, the weakest stock price returns have been delivered, somewhat painfully, by oil producers, and miners (as opposed to explorers and developers) of both platinum and uranium. Potash, coal and molybdenum specialists have also tended to lag.

Stock price returns for listed miners shows a broad correlation with the underlying behaviour of dollar commodity prices. Measured from the bottom, generally during and around December 2008, dollar commodity prices have bounced by as much as 180% (for lead), and 54% (for tin, a minor base metal). Gold bullion, which retraced the least in price during the panic sell off in markets following the bankruptcy of Wall Street investment bank Lehman Bros. in mid-September 2007, has bounced by 57% from its lows.

Silver bullion has seen its dollar price increase by 112% from the bottom. The global aggregate market capitalisation of primary silver producers is relatively modest, at USD 30bn, but the sector clearly owns a devoted following that has put a number of stocks at the front end of broad mining equities' stock price returns. Once again, London-listed Mexican miner Fresnillo ranks as the belle of the ball for the world's 100 biggest mining companies.

In its 2008 annual report, Fresnillo reported that silver bullion averaged USD 14.99 an ounce for the year, compared to USD 13.41 for the year before. In its 2009 interim report, Fresnillo reported that its realised silver price was USD 13.92 an ounce for the first six months of 2009, down 21.9% on the year-ago period. Spot prices are currently at USD 18.73 an ounce, suggesting, based on Fresnillo's earnings and cash flows for previously reported periods, that investors are betting that silver bullion still has some way to go in dollar terms.

But if Fresnillo is leading the pack, there are lots of other contenders very close to the throne, which can change by the minute, in the nature of volatility of tradeable securities. Contenders include a goodly mixture of stocks with metal and mineral specialist pedigrees, with a solid representation from gold diggers in the form of Barrick, Polyus, Newmont, Yamana, and Iamgold.

Beyond silver and gold in precious metals, stocks in very strong demand include Russia's Magnitogorsk (steel and iron ore), ICL and Silvinit (potash), Freeport-McMoRan (copper/gold/molybdenum), and a substantial showing from diversifieds, with top choices manifest in Teck, BHP Billiton, Vale, Vedanta, Rio Tinto, Buenaventura, and Xstrata.

Further top showings from specialist copper names include Southern Copper, KGHM Polska Miedź, Kazakhmys, Antofagasta, and Sterlite. There are also increasing portfolio flows into coal miners, as seen in the highly encouraging price developments for Peabody Energy.

Way at the other end of the performance scale are found a fairly noticeable list of relatively depressed Chinese mining stocks, such as Chalco, Qinghai, Western Mining, Yunnan Aluminium, and even Zijin, a global Tier I gold miner. Further on the relatively depressed side of stock price performance among the world's biggest miners can be found the likes of South Africa's Impala, Australia's Coal & Allied, Indonesia's Bumi Resources, gold stocks Harmony, Kinross, and Agnico-Eagle, France's Eramet, and Canada's PotashCorp.