Gold - and a little silver - dominate

RBCCM presents its 20 "best idea" global mining stocks for the first quarter of 2009.

Author: Barry Sergeant
Posted:Thursday,08 Jan 2009

JOHANNESBURG -

Analystsat Royal Bank of Canada on Thursday published a list of "best ideas"for global mining portfolios, for the first quarter of 2009, anexercise where 20 stocks are named. The new portfolio is heavilydominated by gold stocks, with no less than nine of the total 20 names:AngloGold Ashanti, Barrick, DRDGold, Goldcorp, Iamgold, Kinross, Newcrest, Randgold Resources, and Red Back. One silver name is also mentioned, in the form of Pan American Silver.

RBCCM analysts talk of "a call to be significantly overweightgold/silver stocks". The positive view on gold is a result of "theextraordinary amounts of monetary and fiscal stimulus that centralbanks and governments are committing to achieve a recovery in theglobal economy, which, in our view, should result in a sharp rise ininflation expectations".

RBCCM analysts further recommend for "market weight" four uranium stocks - Cameco, First Uranium, Paladin, and Uranium One - and two fertilizer names, Agrium and PotashCorp.The latter are expected to benefit from seasonal price strength aheadof spring planting, while uranium stocks are expected to continue tobenefit from a recovering commodity price.

RBCCM analysts are "decidedly negative on the bulk commoditiessector and would be underweight coking coal and iron ore stocks at thistime, given the uncertainty surrounding the outcome of negotiations inthe quarter ahead of the Japanese steel year that begins April 1,2009". However, the "one bright spot in the bulk commodities sector" isnamed as thermal / steaming coal (with Centennial Coal and Peabody Energy mentioned),seen as offering investors more predictable revenues with long-termpricing contracts in place with power companies.

Base metal stocks are found at the bottom of the log, with an "underweight recommendation. Should the global economy fail to recover in2009, RBCCM analysts argue, "the base metal commodities (aluminium,copper, nickel and zinc) and base metal stocks would then be expectedto continue languishing". Antofagasta and Teck are mentioned.

The recommendations are largely in line with current globalresources stock price performances, where silver and gold names havestaged the sharpest recoveries from lows broadly seen in October.Uranium stocks have also done pretty well, along with copper stocks. Atthe other end of the spectrum, stocks specialising in zinc and tin rankas the worst performers, followed by names in coal, diamonds,molybdenum, aluminium and fertilizer. Seen over the past 12 months,mining majors (and also oil) stocks have delivered a relatively neutralperformance, while platinum and nickel stocks have recently startedshowing signs of life.