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Coxe bullish on copper, iron ore; wary about rare earths equities

Respected global portfolio strategist Don Coxe wonders if the rare earths research conducted by many penny stock investors "is based on the idea that they are buying unobtainium."

RENO, NV -

In spite of a more complicated outlook this year, global commodity strategist Don Coxe still believes both the metals and mining sectors will do well on a year-over-year basis.

Coxe's bullish case for copper over the longer term remains what he has been saying for the past decade, "The growth in demand as Asia industrializes will continue to support the industrial metals."

"These economies are compressing-into forty years-the economic growth we achieved over two centuries," he said in a Basic Points--The Metals Take Center Stage analysis published this week. Plus, Coxe observed, "China is a far better credit risk than the US, and the metal miners shouldn't be losing sleep that their biggest customer is going to disappear into a debt hole."

In his analysis, Coxe also noted the transformation of Asian economies "means that global steel demand will continue to pressure available supplies of iron ore. Successes such as Canada's Consolidated Thompson...and the recent proposed takeover of Baffinland Iron Mines by ArcelorMittal and Nunavut Iron Ore show that an iron ore deposit no longer has to have proximity to China or the Suez Canal to attract serious attention."

"Incidentally, Vale could be the biggest single beneficiary of the current major widening of the Suez Canal," Coxe suggested.

PRECIOUS METALS

In his analysis, Coxe also discussed the uprising in Egypt and its impact on gold prices.

"Why should gold go up if [Egyptian President] Mubarak goes down?" Coxe asked. "Because gold goes down when there is blissful peace and improving prosperity."

"A revolution in the most important Arab state that could conceivably end with the Muslim Brotherhood in effective charge should surely be bullish for gold," Coxe suggested.

RARE EARTHS

However, Coxe was far more skeptical regarding the plethora of rare earth exploration companies. "There may be a shortage of rare earth deposits outside of China, but there is assuredly no shortage of companies aiming to be rare earth producers."

"The sheer number of suddenly-expensive small companies with big dreams of rare earth production suggests that investors should take more than ordinary caution," Coxe advised. "We have not made a detailed study of this new mining boom, but we know the history of the uranium boom, and how few of those projects turned out to be great investments.

"We wonder how much of the research many of the penny stock buyers have conducted is based on the idea that they are buying unobtainium," Coxe quipped.

"Nevertheless, we wish the speculators and the companies well. Not all booms end in busts for most of the well-managed players. There will doubtless be some huge winners, and we hope to know enough about this new mining industry to be able to make some recommendations in the near future," he added.

INVESTMENT RECOMMENDATIONS

1. Despite their recent run-ups, Coxe said long-reserve-holding base metals stocks remain very attractive.

2. If Egypt's crisis is resolved peacefully, reduce precious metals stock exposure in commodity stock portfolios but retain these stocks in general equity portfolios as risk-reducers.

3. Do not sell the Australian iron ore and coal producers' shares because of the weather events there. "Besides, investors should have longer time horizons than what is needed to clean up after a flood," he advised. "For investors who missed the big run-ups in those stocks now is an excellent entry point."

4. Maintain a strong position within the agricultural sector.

5. The Euro's recent strength is probably unsustainable.

6. Bond portfolios' durations should be near benchmark levels. "The time for extending durations because of an increase change of a double-dip recession in Europe and/or the US, would also be a time for loading up on gold."