Base Metal Momentum Unlikely to Last - Genuity Capital

In a dramatic shift from the fall, the base metals have greatly outperformed the precious metals in recent weeks. Copper in particular is up more than 50% from the bottom. But can it really last? Genuity Capital Markets analysts Tony Lesiak, Nawojka Wachowiak and Michael Gray don't think so.

They wrote in a note to clients:

"We believe a sustained upward momentum in base metals is unlikely to persist until there is tangible evidence of a global synchronized recovery, and believe that investors should take some profits in the current rally."

Their outlook for gold is a bit better, as they point out that U.S. dollar weakness, safe-haven buying and negative real interest rates all bode well for bullion.

All the same, they have reduced their targets on gold companies and increased them for base metal companies based on the recent shift in prices.

Their gold stock price targets were cut by an average of 9%, but they are still projecting an average return of 32% for the companies under their coverage. Based on valuation, they also downgraded Alamos Gold Inc. (AGIGF.PK) to "hold" (from "buy") and raised Golden Star Resources Ltd. (GSS) to "buy" (from "hold").

On the base metal side, target prices were raised by an average of 14%. However, Lundin Mining Corp. (LMC) was downgraded to "hold" (from "buy") because of its recent jump. The only base metal company rated a "buy" is Capstone Mining Corp. (CSFFF.PK).

Comments

[John Polomny]

LME copper invetories are falling and I think that many copper producers will be hesitant to restart furloughed production. In addition the worldwide money pump will be sufficient to propel base metal prices higher. The Chinese are slowly but surely out in the market exchanging their increasing worthless dollar hoard for hard assets.

2009 Apr 17 11:02 AM

[Eric in IL]

What is meant by "sustained upward trend?" I do not expect these to continue in a V pattern, but if they continue upward and then level, they may not dip back down in the near-term. I would HOLD.

2009 Apr 17 02:34 PM