To highlight the falacy of IMF/Clinton/Blair Gold sale proposal....
Gold, Copper Rallies Fuel Two-Week Surge in Latin American Mining Stocks
By James Craig and Andrew Noel
Gold, Copper Rallies Fuel Surge in Mining Stocks: Latin Markets
Lima, Oct. 9 (Bloomberg) -- Latin American mining stocks
have surged the past two weeks as gold soared to an 18-month
high.
No surprise there, as the stocks' fortunes are clearly tied
to movements in metal prices.
Yet there may be some legs left in this rally, with
investors betting gold and copper can stay close to these levels
as demand from Asia grows and cost-cutting by mining companies
over the last two years begins to pay dividends.
That could be good for the region's mining stocks such as
Cia. de Minas Buenaventura SA and Southern Peru Copper Corp. in
Peru, and Industrias Penoles SA in Mexico.
``We didn't buy (Buenaventura) trying to call for a gold
price spike,' said John Ditieri, Andean country portfolio
manager for Emerging Market Investment Corp.'s $1.3 billion fund.
``We bought it for its long-term appreciation and asset value.'
For now, the rally is based on surging prices for gold and
copper, which have restored some of the luster to stocks such as
Buenaventura, Latin America's largest gold producer.
Asian economic growth, mine closures in the last two years,
industry mergers, low-cost mines and a decision by Europe's
central banks to curb gold sales have breathed new life into
metal prices and mining stocks.
``That's the sector we're looking to maybe increase exposure
in the near future,' said Oswaldo Sandoval of the $60 million
Explorador Capital Management hedge fund. ``One of the prime
factors that should drive a recovery in Latin stock markets
should be recovering commodity prices.'
Gold's Allure
Investors are seeing fresh value in the region's bullion
producers after 15 European central banks promised to curb gold
sales. Gold, which had hit 20-year lows earlier this year, has
surged 26 percent since Sept. 20, helping Buenaventura's New York
shares gain 20 percent over the same period. Gold closed Friday
at $321.70 an ounce.
``We see further upside in terms of demand. The last (gold)
auction by the U.K. was eight times over-subscribed,' said Cesar
Perez-Novoa, a senior analyst with BBV Continental SAB brokerage
in Peru.
Even if gold falls over coming weeks as speculation loses
steam, long-term investors are likely to stick with Latin
America's miners because of solid company fundamentals. What's
more, there aren't a lot of Latin American mining companies to
chose from, aside from Buenaventura, Southern Peru, Mexico's
Grupo Mexico SA, a copper producer, and silver miner Penoles.
Buenaventura owns 44 percent of Yanacocha, Latin America's
largest gold mine. The six-year-old open-pit mine in Peru's
northern Andes already sports a cash cost of $110 an ounce, half
the world's average. Moreover, the mine expects to lower cash
costs to $100 an ounce and expand output this year. The mine
produced a record 150,000 ounces in August and aims to boost
production by 24 percent this year.
``If you look at the cash costs, you can see Buenaventura
lies at the lowest range of the industry cost curve,' said Perez-
Novoa.
Yanacocha's 10.4 million ounces in reserves are dwarfed by
companies such as Placer Dome Inc. of Canada, with triple that
amount, yet two-thirds of its concession area has still to be
explored, an area with a centuries-rich history of metal finds.
``We're talking about Peru here, one of the most attractive
mining areas in the world,' said Ditieri.
Copper Mergers
Investors hunting low costs and rising profit could turn an
eye toward Southern Peru Copper, which benefits from copper's
gradual recovery. Copper prices have risen 23 percent since June,
as demand for construction materials grows in Asia and Europe.
The company is also benefiting from a takeover battle for
its majority owner, Asarco Inc. Grupo Mexico increased its bid
Friday to $2.2 billion, topping a bid from U.S. producer Phelps
Dodge Corp. The takeover promises to help Southern reduce costs
through economies of scale and improve financing as it carries
out a $1.2 billion modernization and expansion.
Copper, used to make pipes and wires, is trading near its
highest price in 16 months in New York after some U.S. mines said
they'd close down to ease a glut. The metal closed at 76.75 cents
a pound Wednesday.
This bodes well for Southern, whose Toquepala and Cuajone
open pits can't compete with Chilean competitors, yet with
operating costs below 50 cents a pound are more efficient than
U.S. mines.
Since late January, Southern's stock price has more than
doubled, reaching a 52-week high of 18 3/16 Friday in New York.
``We have to remember Southern is Asarco's main asset and
this should highlight its value,' said Aldo Quintana, fund
manager at AFP Horizonte pension fund in Lima.
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