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Gold/Mining/Energy : Mining News of Note -- Ignore unavailable to you. Want to Upgrade?

To: LoneClone who wrote (31024)	1/11/2009 8:25:20 PM
From: LoneClone	Read Replies (1) \| Respond to of 193918

Miners see light at end of tunnel ft.com Investors charged in to mining equities this week before retreating in the face of old threats, but they left a hint of optimism in a sector that some view as undervalued after a dramatic sell-off in the fourth quarter of 2008. “Miners are now at one of the most oversold levels against the market in their history”, wrote analysts at MF Global, the commodities broker, in a report on Wednesday. “We believe that after having ignored the risks in the early summer, the market is now ignoring the positives.” Analysts have cautiously pointed to positives starting with a rally in base metals prices earlier in the week. That rally was short-lived, as was the accompanying lift it gave to shares in the six largest London-listed miners, which rose an average of 24 per cent in the first six days of the year. But driving the rally were several factors that remain relevant: “The effects of capacity cuts coming on, the end of the de-stocking phase, and the ability of certain players to begin taking on commodity positions post year-end balance sheet dates,” according to Liberum Capital. Others note that prices of base metals – such as nickel, copper and lead – continue to fall to levels at or below the costs of metal production, an inversion that the rules of supply and demand do not allow to persist for long. There is talk in the sector of relief coming from readjustment: a readjustment of mining companies’ costs and size, followed by a readjustment of investors’ expectations from companies whose profits in recent years grew at the same stunning pace as the Chinese economy. Recently buoyant shares reflect investors’ acknowledgment that leading miners took radical measures in December to support leaner growth in 2009. At Rio Tinto and Anglo American those measures include multi-billion-dollar cuts in capital expenditure and plans to sell assets and lay off thousands of workers. For many industry watchers the question is not whether leading miners are oversold, but how oversold they have to be before investors regain faith. Anil Agarwal, chief executive of Vedanta, a base metals miner in the FTSE 100, answered whether the company was undervalued by pointing out that its cash balance of $5bn is about the same as its market capitalisation. Mr Agarwal said the entire mining sector was undervalued by 60 and 70 per cent. Vedanta has launched a $250m buy-back programme. The example of Vedanta suggests traditional metrics offer no clues about when investors will call the bottom. Vedanta shares fell to 388p in late November, barely higher than their opening price in December 2003. Over the same fiscal four-year period, however, earnings per share rose from 23.3 cents to 305 cents, and revenue from $1.3bn to $8.2bn. Meanwhile, Rio has made the strongest gains this year, which analysts ascribe to investors’ belief that worst-case scenarios about its debts and the prices of its principal commodities, especially iron ore, are overblown. But Rio and Vedanta remain exposed to industrial metals prices. As long as these track the fall in global economic output, any gains are likely to be limited. MF Global’s report cites sustained low commodity prices, more de-leveraging of commodities funds and debt refinancing problems as the risks that could prevent a recovery. But it also argues that low commodity prices would not be entirely disastrous to mining companies, because producer countries’ currencies would weaken, lowering miners’ costs.