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To: ms.smartest.person who wrote (767)	2/26/2006 4:41:42 AM
From: ms.smartest.person	Respond to of 3198

Timely switch to gold Leon Kok Posted: Sun, 26 Feb 2006 [miningmx.com] -- SOUTH AFRICA’S MINING SECTOR is set to continue its robust run this year on the strength of stronger commodity prices, gold bullion’s current bull market and perhaps a slightly weaker US dollar/rand exchange rate. The sector index has risen more than 80% over the past year. Platinum shares have more than doubled and general mining is 54% up. Investec Resources sector head Daniel Sacks says that his team has bumped up price forecasts for several commodities, which translates into increased earnings forecasts and higher valuations for several leading mining and resource companies. He shares stock responsibilities with resources analysts Cara Geffen and Lekale Maelane. They also manage the Investec Commodity Fund, currently ranked number one in its category over three months, six months and 12 months and third over three years. It returned 42% over the past six months, 78% during the past 12 months and 116% over three years. It was the top-performing unit trust overall last year. Sacks says that his team’s valuation methodology is fairly simple. “We don’t take big macroeconomic bets. Rather, we try to assess what commodity prices are discounted by the stocks’ valuations and whether those are reasonable.” A breakdown of the top sectors held by the fund shows mineral extractors and mines 43%, platinum 15%, oil 11%, gold 8%, steel 7% and food 5%. Looking ahead, Sacks says: “We still like the commodity story. Demand for commodities as an asset class is being driven by investors attracted by a tight fundamental (supply/demand) situation. Free news alerts: click here to subscribe “New demand from China and India, coupled with a lack of a supply response due to years of underinvestment in exploration, higher mining costs and an unwillingness by miners to raise long-term commodity prices used in valuing new projects has depleted inventories to critical levels.” Sacks says that supply and demand fundamentals for gold are no different. “Gold is probably the best beneficiary of this investor demand, as it’s the most investable of all commodities due to large above ground stocks and its high value relative to holding costs. “The fact that gold has little industrial applications becomes a bull case in the current environment, as fund demand can drive the price to record levels without demand substitution.” In fact, gold shares have been the major contributor recently to Investec Commodity Fund’s spectacular performance. Though a strong rand has in the past cancelled gains in the gold US dollar price, Sacks expects the US dollar/rand exchange rate this year to be slightly down at an average US$1/R6,50. He forecasts major earnings increases for Gold Fields and his fund has a fair stake in Western Areas. Among platinum stocks, Sacks likes Impala, which has also benefited significantly from higher metal prices. Investec Asset Management believes that the platinum price will remain well supported over the next few years due to slow delivery of promised new projects by industry leader Amplats and strong demand for auto catalyst manufacturers. The fund is well exposed to diversified miners such as Anglo American (21% of total exposure) and BHP-Billiton (14%). Both shares have delivered similar returns over the past year. Sacks likes Mittal but is wary of Kumba at this stage. On the natural resources side the fund has significant holdings in sugar stocks such as Illovo, but Sacks is uneasy about global paper and pulp producer Sappi. The news flow and earnings growth remain positive for the sugar sector, which has been benefiting from better prices and higher volumes. The world price of sugar is at record highs at more than US$0,18/lb and SA production this year is expected to total 2,5m t. This article is a printout from Miningmx.com Copyright © 2004 miningmx.com