Movers and shakers - January 2010

In this edition of the Top 100 podcast Barry Sergeant takes us through the big moves seen over the last month in the global mining sector and delves into why there has been a major move downwards over the last month.

GEOFF CANDY:  Hello, and welcome to the first edition of Mineweb's Top 100 Podcast where we look at the "movers" and "shakers" of the mining world, but we let the numbers do the talking.  Barry, if one looks back at the last eighteen months, it is fair to say that prices of mining stocks seem, on the surface at least to have held up pretty well.

barry sergeant:  Yes, Geoff very much so there has been huge comeback during 2009, but having said that there has been a very sharp downturn for the duration of this month.  At the moment, if you take the world's Top 100 mining stocks by value - then the average stock - and this is a weighted average which is more accurate, is down by 20% - so anyone who believes that 20% is indicative of a possible bear market - they might be nervous at this stage.  But on the flip side it might just be a correction.

GEOFF CANDY:  Now, which companies specifically are driving or leading this charge downwards, shall we say?

BARRY SERGEANT:  Most companies. If you look at the biggest stocks - the favourite stock at this stage is BHP Billiton - the world's diversified resources company - which given its quality of cash flows and diversification, is not that surprising.  But the majority of stocks are down - there is mispricing in some markets for example, Russia where companies like ­, are still trading very strongly; South African where you've got Kumba Iron Ore; Exxaro still very high; Chile where CAP is high and also Indonesia - stocks like Adaro Energy. But in most other markets whether the United States, China, London or Toronto stocks are running down about 20% below where they had seen recent highs.

GEOFF CANDY:  Are there any specific sub-sectors that are bucking the trend?  We are seeing quite a lot of interest in potash for example - a lot of merger action happening in that sub-sector.

BARRY SERGEANT Yes, if you go back a little bit further there was a fairly major change in the passing structure of mining stocks around about the middle of 2009, and taking it from there the big recovery sectors had been diamonds - which is a very small sector. There has also been very strong buying in nickel and coal stocks outside China and what you might call the tier two iron ore stocks, many of which are listed in Australia. There's also been strong buying of platinum stocks which were at one stage, about a year ago, left for "pretty much dead" and that's followed by aluminium stocks and potash.  The stocks that have been sold down - and I stress that it's over the last six months or so - are gold stocks, silver stocks, uranium and some of the smaller sectors like zinc molybdenum and tin, so it's a mixed bag and it depends on your base. At this stage there's a lot of interest in what might be called oversold situations and even last night, bargain hunting in mining stocks all over the world. There were some stocks that were up by 10%, 20% even 30% and higher in a single day - that's in the past 24 hours- and that's pretty much spread across most sectors - so a lot of investors have taken a lot of money off the table. If you add it up it runs into billions of dollars and they're now looking for bargain stocks where they can replace the kind of bets that they've been running so hard on over the past 12 months.

GEOFF CANDY:  Are these bets likely to be in the more established stocks, the tier one tier two sectors, or are we likely to see companies like Sandfire Resources for example - which did phenomenally well over the last little while - smaller companies are they going to get some of the attention as well?

BARRY SERGEANT: What you might call the speculative money is going into smaller stocks. In February we've seen quite bit of action in the potash market where the world's two biggest miners, BHP Billiton and Vale have been active.  BHP Billiton taking out Athabasca Potash Inc. - that has put in a bit of a run on some of the smaller potash stocks in Canada.  But looking at the kind of stocks that were moving in the past 24 hours it's pretty much spread.  Some of the bigger stocks that one might mention here, and many of them I might stress are quite small, Encanto Potash is up 20%, Macarthur Minerals also a Canadian, up 11% - bearing in mind in Canada and Australia is where most of the profit has been taken off the table in mining.  There has been interest in bigger stocks like Platmin (the Canadian listing anyway) that was up 10%, 11% overnight. It's got a cap of just over US$600m so that's not a small stock - then also India showing quite a comeback with demand for NMDC which is one of the world's top ten miners, up by 5% overnight.  One can go through the different areas but it's right across the board whether it's nickel, zinc diamonds, there's no particular area - it's more bargain hunting than anything else.

GEOFF CANDY:  You mentioned diamonds, and I would like to put a bit of time into that.  What's going on in the diamond market - why is there this seemingly recent resurgence?

BARRY SERGEANT: Well diamonds, if you go back roughly 12 months - that sector which is one of the smallest investable sectors in the world - the current investable number is just over US$3bn and, of course, De Beers the market leader is not listed and a number of the other big diamond miners are not listed - so that figure is not that helpful, but that is the actual investable amount of market capitalisation around the world in diamonds.  Around about a year ago those stocks were sold down to the point where a good number of them simply disappeared.  They either went out of business or they were "soaked up" by other diamond companies and the ones that survived, for whatever reason, whether they had good cash on balance sheet or they had a good underlying asset - have been very much in strong demand, so it's more like a rebound situation than anything else.  Mopani Diamonds, which is listed in London, is up by over 700%.  But there the market cap US$50m - fairly modest.  BRC Diamond Core announcement out today with Rio Tinto - very modest market cap US$12m but it's up over the past year by over 600%. If you look at diamond stocks over the past 12 months on a weighted average, stock prices have doubled, they've been held back a bit by the relatively modest gain from Gem Diamonds which is one of the biggest stocks in the market where the stock price has only doubled.   Harry Winston Diamond Corporation, which is the other big one - that's up a lot more and it's got a cap at the moment of US$750m up by 375% in the past twelve months.

GEOFF CANDY:  Barry, just to close off there was a flurry of interest around Rare Earth's a little while ago when people started realising that China seems to be cornering that market at a rapid rate - are people looking to buy into that sector and if so, which companies are they looking at?

BARRY SERGEANT: There's very little in the way of listed stocks that are available - there is literally a handful and the main issue with those stocks is not the potential to develop assets - it's raising the kind of capital that it requires, which as in a lot of mining ventures, is fairly vast. We haven't seen a focused buying spree in that area - you don't have that neat definition like you have in, for example in primary silver, gold, copper or even molybdenum stocks, so that is an area where rather like lithium, investors are still taking a bit of time to get their "school certificates"- to put it that way.  

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