Ike, re: Gilder. I read somewhere before Gilder became WS #1 self-proclaimed tech guru he was a political columnist writer.
Btw
Now you can understand why I've tried to avoid mining stocks this year.
>Sydney, June 7 (Bloomberg) -- Investors who shifted billions of dollars to Internet stocks from global mining companies in the first two months of the year aren't rushing to put the money back even though many technology investments have turned sour.
The likes of Rio Tinto Plc, Billiton Plc, Broken Hill Proprietary Co. remain out of favor because of concern rising interest rates will reduce demand for the metals they mine. Prices for aluminum, copper and zinc are already in decline, pinching their profits.
``The money that left the real economy, the smoke-stack industries, for technology companies hasn't returned,'' said Tim Barker, who manages almost $5 billion for Rothschild Australia Asset Management Ltd., a tenth of which is invested in resources companies.
Rio Tinto, the world's biggest mining company by market value, and BHP, Australia's biggest resource company, accounted for as much as 40 percent of a Sydney fund-manager's portfolio in the early 1990s and about 34 percent in 1997. That percentage has fallen to about 15 percent and is unlikely to rise anytime soon, Barker said.
Resource stocks did have a good run. The Bloomberg Europe Metals and Mining Index rose 167 percent last year as investors anticipated rising metals prices would boost corporate profits.
Copper and aluminum prices climbed almost 30 percent through 1999, while nickel more than doubled on the London Metal Exchange, the world's center for metals trading. This year, aluminum prices dropped 12 percent, copper 7 percent and zinc 11 percent.
Record Run
The shares of Rio Tinto, BHP and Billiton all reached records between Dec. 16 and Jan. 10. Yet even as demand from carmakers and builders drained metals stockpiles, investors sold such stocks to buy stakes in companies such as Santa Clara-based Yahoo! Inc., Japan's Softbank Corp. and San Francisco-based Netvalue Holdings Inc., Internet companies which doubled within weeks.
Yahoo, Softbank and Netvalue have now lost as much as two- thirds of their value since February. Stockpiles of copper and aluminum on the LME are at a 16-month low. But the money still isn't flowing back.
``While fundamentals are good now, they aren't going to get better,'' said Eric Betts, an investment strategist at Nomura Australia Ltd. ``Metal prices have peaked and future economic prospects are under a cloud. So no one wants to be left on board holding resources stocks.''
London-based Rio Tinto's market value has fallen by almost $10 billion and its shares are down more than 30 percent since the start of the year. BHP dropped 15 percent, Billiton, the U.K.'s third-biggest mining company, 35 percent and Anglo American Plc, the world's biggest mining company by sales, declined 25 percent.
Falling prices, rising interest rates and the increasing costs of curbing and repairing damage to the environment have combined to pull down the Metals and Mining Index by 36 percent since the start of 2000.
Fed Moves
Last month, the U.S Federal Reserve raised interest rates by 50 basis points to 6.5 percent, the sixth increase since June 30, citing the threat of rising inflation. A European Central Bank member said last week interest rates in Europe may rise for the fifth time since November.
``We're expecting a further rise in rates with implications the world economy will have a real hard landing, harder than many people expect,'' Barker said.
Raw materials are often the first and biggest casualties of slowing economic growth as their customers, from automakers to builders, cut purchases in anticipation of reduced demand.
``Interest rate rises will start to bite,'' said Don Hamson, who helps manage almost $14 billion for Westpac Investment Management Ltd. ``You're not going to have a bull run (in metal prices) like last year.''
Investors are switching instead to shares of banks and consumer goods companies such as food producers and retailers where demand typically holds up even in a slowing economy, Betts said.
Shares of Citigroup Inc., the largest U.S. financial services company, gained almost 19 percent this year while Woolworths Ltd., Australia's biggest food retailer, rose 17 percent.
Environmental problems have also tarnished the outlook for mining investments.
PT Freeport Indonesia, 81 percent owned by New Orleans-based Freeport-McMoRan Copper and Gold Inc. and 14 percent by Rio Tinto, was forced to cut output at its Grasberg mine after a landslide of waste rock from the mine caused a flood and killed four people. Grasberg has the world's second-biggest known copper deposit and the biggest gold deposit.
BHP this year agreed with a World Bank report that it needs to accelerate closure of its 52 percent-owned Ok Tedi mine in Papua New Guinea after waste from the mine caused flooding that caused thousands of landowners to lose their livelihood.
Shares of Australia's Pasminco Ltd., the world's largest producer of zinc and lead, have lost more than half their value since Jan. 1 on concern about legal suits that allege its smelters caused lead poisoning, tumors, asthma and behavioral problems.
``Environment problems are (making it difficult) for resources companies to pull in investors,'' said Peter Chapman, an analyst at brokerage Burdett Buckeridge Young Stockbrokers. ``These can't be resolved overnight. It requires them to spend more money to address the issues.''
Jun/06/2000 23:08 ET |
