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

To: LoneClone who wrote (31081)	1/12/2009 8:01:02 PM
From: LoneClone	Read Replies (1) \| Respond to of 194042

"Too early to buy metals and mining stocks" - Numis Numis Securities believes a scenario in which commodity prices return to the 70th percentile of commodity cost structures is likely. Author: Tessa Kruger Posted: Monday , 12 Jan 2009 JOHANNESBURG - mineweb.com Numis Securities says although the mining and metals sector is tempting at sharply lower prices, it's still too early to buy into the sector as key commodity prices hold significant further downside. The company said in a note today current prices and analysts' forecasts of key commodity prices including copper, thermal coal, coking coal and iron ore remain above the majority of cost structures of those commodities, despite the fact that the market is over-supplied. For this reason Numis believes that sector share prices have further downside. "We believe it is optimistic to expect supply discipline to maintain prices above the cost structure in oversupplied markets,' analyst Simon Toyne said. He said the scenario in which prices returned to the 70th percentile of the cost structure was reasonably likely. "Apart from the fact that earnings become negligible for each stock except Rio Tinto and BHP Billiton in that scenario, the key is that EBITDA margins become modest, generally less than 20%, suggesting further modest declines in commodity prices. "This would make "critical differences" to earnings and financial security for every stock. Significant probability of financial strain will increasingly be priced in as commodity prices decline in our view", he said. BHP Billiton remains the company's top pick, but its recommendation is one of reducing the stock, while its target price is set on 1061 pence. Next on its list of preferences in the mining and metals sector is Xstrata, followed by Anglo American, Antofagasta, Rio Tinto and Lonmin, but these stocks all come with a "sell" recommendation.