Be overweight uranium stocks, market weight gold, underweight base metals - RBCCM

Investment bankers RBCCM see uranium and fertilizer stocks as their top picks for growth, but are not convinced on an industrial metals revival yet.

Author: Lawrence Williams
Posted: Thursday , 02 Apr 2009

LONDON -

There is much disagreement these days among analysts and banks as to where investment should be placed in the mining sector to generate the best returns. There seems to have been a slight restoration in confidence that the worst of the global economic meltdown may be behind us, although this is not really apparent in the major stock indices, while there seems to be more confidence in base metals of late and correspondingly less in gold. How fickle the market is, given that only a few weeks ago precious metals were seen to be moving much higher and all was doom and gloom in the base metals sector.

Mineweb is not convinced on the latest apparent thinking. We see base metals as remaining vulnerable, particularly if the recent Chinese boost of stockpile purchases is not sustained, while gold - and silver - seem to show the potential of at least retaining their value, even if the big rises predicted by some now seem to be distant memories. That is not to say there won't be big rises, but there seems in the current market to be a stabilisation in the low $900s for gold which currently shows little signs of breaking out of the range.

To an extent the Royal Bank of Canada Capital Markets team seems to be taking similar views to Mineweb in its latest recommendations for its Global Mining Best Ideas portfolio, but is also suggesting opportunities among other mining sectors which it feels show promise for capital appreciation in the short to medium term.

RBCCM warns too about base metals feeling that investors should be underweight base metals stocks as the commodities are in surplus, LME stockpiles remain at elevated levels and utilisation rates continue to decline. Similarly, RBCCM would also be underweight bulk commodities stocks; as they are deemed a mid-to-late cycle performer and the investment banker would like to see evidence of a global economic recovery before becoming more positive.

So where does RBCCM feel investors should put their money? Uranium stocks and fertilizer stocks are the top picks here. On uranium RBCCM says "After record spot prices in 2007 and a subsequent hard correction, RBC Capital Markets believes the uranium spot price will rebound in H2/09. Significant production cuts were announced in late 2008 and RBC Capital Markets believes the supply side of the equation remains at risk, while demand appears to remain in line with expectations."

On fertilizer stocks RBCCM's position is that "potash prices continue to remain firm and agricultural fundamentals support a rebound in fertilizer demand through 2009. A continued rally in fertilizer stocks is dependent on overall crop prices, which should remain supportive for fall fertilizer demand in 2009."

On precious metals RBCCM is less positive. It had previously recommended an overweight position but has moved this to ‘market weight' with the feeling, along with that of a number of other analysts, that the gold price will come under pressure as a traditionally very weak demand period is entered mid-year.

However all these markets, perhaps bar the major recommendations, are at the beck and call of market sentiment and the perception of what is happening globally and whether the worst of the economic meltdown is over. One suspects that this is far from the case and further defaults and failures of banks, major companies, countries even, which would seem to be inevitable still, could yet strike heavy blows which could boost the appeal of precious metals as a wealth protector, while kicking industrial metals in the teeth.

Sooner or later too, the volume of money being pumped into the markets by governments will almost inevitably move the western world from deflation to inflation - some may see this as a positive effect - leading to higher interest rates, a reduction in earnings power etc. and probably higher precious metals prices, although again these may not show gains in real terms but could at least offer a form of wealth protection. Should the dollar decline - and the only thing stopping it from doing so is weakness in other major currencies - all commodity prices will likely rise in dollar terms, but not necessarily in real values.

SHARE THIS ARTICLE

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning, and concluding, 24 hours later, in the Vancouver evening. If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

Print story

Email story

Subscribe to free