http://www.mineweb.com/mineweb/view/...

Mining stock picks - but not for the fainthearted

Barry Sergeant ventures a global resources "stock picking" list for 2009, covering both traditional and speculative categories.

Author: Barry Sergeant
Posted: Monday , 12 Jan 2009

JOHANNESBURG -

Stock pricing patterns of nearly 900 resources stocks - mainly in mining and oil - around the world show that the group is currently trading at its best levels in nearly six months. The mining group ranks as the best performing equity subsector globally, with an aggregate increase of 60% from trough stock prices, struck in most cases around mid-October 2008. The MSCI Barra dollar index for all global equities, by comparison, has risen by a more modest 22% from its low point.

The world's 100 most valuable mining stocks have added an aggregate USD 298bn in market value, from the bottom, and are currently worth a combined USD 793bn. Within the global mining sector, there is no question that listed gold stocks have recorded the best performances, followed by listed silver, and then uranium, stocks. At the physical commodity level, gold bullion has least underperformed in dollar terms, while uranium prices have been recovering for some months. Gold currently trades about 20% below its highs (seen in March last year), while silver is off nearly 50%, and platinum by 58%.

Despite signs of recovery here and there, dollar price levels for most commodities remain trashed, and the outlook remains pretty dismal, but, then again, equity investors are keenly pricing in forward benefits of wide scale mining cutbacks, along with the long-awaited stabilisation in global credit markets. In most mining subsectors, prevailing dollar prices are deep into the lowest cost quartile, rendering much of global mining production uneconomic.

Against this perplexing background, some companies operate exceptionally low cost mines, and may also have lots of net cash, and, to boot, exceptional project pipelines, underpinned by top class exploration finds. All told, a conservative resources portfolio going into 2009 would probably be anchored by BHP Billiton and Exxon Mobil, the world's biggest diversified resources, and oil, stock, respectively. Two suggested further anchors would be PotashCorp (the world's No 1 miner of core fertiliser ingredients) and CNOOC, the China-based oil and gas group that never seems to look back.

Recommended precious metal stocks in gold are Kinross, Agnico-Eagle, Eldorado, Great Basin, Silver Standard (silver), and Northam (platinum). Cameco, the world's biggest uranium digger, anchors prospects in that sector. In base metals, it seems that only copper offers the hint of a spark, with leading lights there marked down as Southern Copper, Antofagasta, and First Quantum.

Beyond this suggested portfolio of solid prospects, investors with a more speculative appetite may well take on some riskier notions in precious metals, not least with Aurizon, Tanami Gold, First Majestic, Queenston Mining, Bear Creek Mining, Starfield, PGM, and the meteoric La Mancha Resources.

In the uranium space, where more than 100 developers and explorers are listed around the world, good potential upside appears to be on offer from First Uranium, the understated Deep Yellow, and Hathor Exploration (already likely the world's best-performing mining stock, with its amazing uranium strikes in Canada).

Opportunities in other sectors appear to be rare; two names may be ventured: Atlas Iron (with its large iron ore potential in Australia) and Equinox (copper, with an option on uranium).