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Gold/Mining/Energy : Copper - analysis -- Ignore unavailable to you. Want to Upgrade?

To: Henrik who wrote (182)	8/29/2000 1:45:18 PM
From: Stephen O	Read Replies (1) \| Respond to of 2131

From Globe and Mail 29 aug 2000 Analysts target resource stocks They find much to like in sectors that many investors overlook, including base metals and forestry DAVE EBNER The Globe and Mail Tuesday, August 29, 2000 While strong oil and gas stocks and the fight for copper producer Rio Algom Ltd. grab all the headlines, analysts and fund managers say many natural resource companies are undervalued by investors. "When you look at Rio Algom, which has been put in play by Noranda and now Billiton, it highlights the value in the sector that investors are clearly looking over or simply not paying for in the share prices," fund manager Bob Lyon said. "There is value in these stocks and if investors are unwilling to pay for it companies will. Sometimes that is how the value is eventually realized." Mr. Lyon, a C.I. Mutual Funds Inc. vice-president, manages the $14-million Signature Canadian Resource Fund and the $40-million BPI Canadian Resource Fund. Nineteen per cent -- and rising -- of his holdings are base metal stocks and 14 per cent -- also rising -- are paper and forest companies. "The share prices relative to the outlook of the underlying commodities are much more favourable than investors are giving them credit for," Mr. Lyon said. "In fact, you could say the outlook is better than it was six or nine months ago and yet the share prices have come way off. We see good value in a lot of the base metal names out there." ! ! (Mr Davidson is from Newcrest Capital) ! But like Mr. Lyon, Mr. Davidson sees much to like in base metals today. "For the first time in a long time this sector is making very good earnings," he said. "These companies, by and large, are generating good cash flow in a period when metal prices, you could say other than nickel, are somewhat subdued. That tells you there's some pretty good financial strength and good financial leverage to these companies. By and large, there's not too much in the sector that's not undervalued. Take your pick." Base metal prices have been fairly steady this summer. The average price for aluminum on the London Metal Exchange in August is 69.1 cents (U.S.) a pound, down from the July average of 70.9 cents. Copper is averaging 84 cents a pound this month, compared with 81.6 cents in July. Nickel, where supply is quite tight, costs an average of $3.59 a pound on the LME, down from $3.71 in July. Finally, zinc is 52.9 cents this month, up slightly from 51.5 cents last month. Of the four commodities, Mr. Davidson said the metal of the moment -- and of the longer term -- is copper. At First Associates Investments, analyst Raymond Goldie also likes copper. "Supply is lagging behind demand," Mr. Goldie said. "There's a huge amount of inventory that's being drawn down rapidly. Next year we'll see inventories very tight and prices really start to rise." Mr. Goldie said the industry's strength is simple. "They're producing commodities for which the demand is growing at just under 4 per cent per annum. The first half of the '90s were much more spectacular but I think for an industry that is being characterized as a sunset industry, a number like 3.9 per cent ain't bad." Worries about the so-called soft landing of the U.S. economy shouldn't affect metal prices too much, Mr. Goldie said. "Right now it's a very rare period in world history when all the economies are growing together. If we do see a soft landing in the U.S. economy, I think we'll see the strength coming from other countries," Mr. Goldie said. "The last U.S. soft landing, in 1996, did not have much of an effect on metal prices." The past year has not been good for the industry. The Toronto Stock Exchange's metals and minerals index is down 10.65 per cent in the past 12 months, ranking 11th among the TSE's 14 subindexes. But in the past month the metals and minerals index has done well, up 8.78 per cent, in part because of Rio Algom. globeandmail.ca