Sorting the resources havoc

A survey of the biggest losers, and winners, among listed global resources stocks, not to forget the battered middle ground.

Author: Barry Sergeant
Posted: Monday , 04 Aug 2008

JOHANNESBURG -

Measured on a weighted basis, 20 Asian coal stocks, listed mainly in China, have lost an average of nearly 60% in pricing over the past 12 months. These stocks are no small beer, and are led by Shenhua, one of the world's biggest coal miners; the grouping of 20 stocks currently carries a total market capitalisation of USD 156bn.

Among listed mining stocks across the world, this grouping may represent an extreme. The severe decline can in part be attributed to the bursting of a huge bubble in Chinese equity markets in general. The Shanghai Composite index is now 54% off its high, compared to far more modest declines of around 20% in each of the Dow Jones Industrial, S&P 500, and FTSE 100, indices.

The prices of listed Tier I coal miners outside Asia have given returns right at the opposite end of the scale. This is a grouping of 30 stocks, listed mainly in the US, Canada and Australia, with a total market capitalisation of USD 124bn. Measured on a 12-month composite basis, the stock price returns from these names, led by Peabody Energy, Consol Energy and Fording (currently under offer by Teck Cominco), rank second in the world only to potash producers.

Prices for potash and coal, and to some extent iron ore, were relatively late in adjusting upwards in the commodity upcycle, in place generally since early 2002. The earlier price gains were led by the likes of crude oil, base metals and gold and silver bullion. Investors were naturally earlier in on the upward pricing of more familiar producers, on earlier themes. Translated into historical stock prices, this means that certain sub-sectors had been relatively "fully priced" for some time.

There is growing evidence that energy and food prices hit choke points over the past few months, and commodities are now generally on the slide, with potential for further corrections, going forward. Among listed stocks, individual sub-sectors are now being singled out for special punishment.

Dollar prices for zinc metal, for instance, have more than halved over the past two years, with no particular end in sight. Looking beyond the idiosyncratic reasons for bombed out stock prices of Asian coal miners, prices for listed zinc stocks currently lead the bombed out list - nearly. Prices for zinc stocks, based on a sampling of 12, are currently more than 50% off highs, on a weighted basis.

The list of losers is headed by listed tin stocks, but then, there is an Asian effect there as well, in the form of Yunnan and Timah, the dominant listed miners. In terms of annual tonnage output, tin is in any event by far the smallest of the base metals.

Looking across far bigger sub-sectors, those with losses of 40% and more include listings of stocks in copper, molybdenum, uranium, diamonds and silver. Iron ore stocks are down by an average of 31%, but previously rose by 64% from 12-months lows, rendering a composite weighted average return of 33% over the past 12 months.