Metals and Mining: Manageable Risk - UBS

Investing in metals and mining remains a very tricky and risky proposition, but there are some promising indicators that the risk is becoming manageable, a new UBS bulletin suggests.

UBS Investment analyst Brian MacArthur said in a note to clients Wednesday:

Commodity prices and base metal equities have aggresively responded to selective leading indicators of economic stabilization and Chinese re-stocking.

In particular, copper and nickel equities are up 94% and 68% respectively, he said.

Weak conditions in North American industrial production could prove a problem. However, Mr. MacArthur sees the potential of a re-stocking event in the West, improving macro indicators (oil and steel prices, a rising purchasing managers' index and inflation expectations) and earnings per share momentum as "supportive elements" that limit the risk of a pullback in equities.

With that in mind, Mr. MacArthur has raised his base target multiples by about 20%, towards 5.5x for enterprise value/earnings before interest, tax, depreciation and amortization (EV/EBITDA) and 1.1x for price/net asset value (P/NAV) ratios. This has produced an accordant 22% increase in target prices.

UBS is maintaining "Buy" ratings on Equinox Minerals (EQXMF.PK), First Quantum Minerals (FQVLF.PK), Freeport McMoRan (FCX), HudBay Minerals (HBMFF.PK), Lundin Mining (LMC), Mirabela Nickel (MRBAF.PK), and Teck Resources (TCX).

Comments

[James Wilson:]

I wornder how Ex Senator Phil Graham at UBS with his wife feels about being on WELFARE from the Swiss Government and their bail out of UBS ?

Why isn't MS, BAC and GS shorting UBS out of existence like they are trying to do to Citibank ??????

May 13 02:32 PM

[DONE_SONZ:]

Gold miners.

May 13 04:57 PM

[Market Sniper:]

Copper? OK but maybe topping out due to seasonality here. Best bet is to go with precious metals mining companies. We are just seeing the start of what could be the next leg up. As gold is measured (erroneously in my opinion) in fiat currency, the "fundamentals" have never looked better. More fiat being created by the second world wide than ever before in the history of man. If they ever took all the digital "money" being created and had to print it, no tree in the planet would be safe. There are CONSEQUENCES for what is going on here. Back in 1980, took a shot gun approach to the miners through the Vancouver Exchange and bought 50 different issues, all under 25 cents for $5,000 worth. Came out very well. Would not choose the same approach this time. Stay with the juniors. Well managed companies with proven reserves. Should do very, very well.

May 13 09:41 PM

[Boxed Merlot:]

Is there anyone out there that can help on marketing a deeded mineral right? This particular property's value is in the subterranean mineralization as indicated, (over 116K oz Au), in previous drilling results / records and historical mining activity. The deposit is a subsurface mining proposition with previous written recommendations / conclusions from reputable mining companies ranging from further exploration to buy and hold / develop. These were dated from late 1980 to early 1990. Current mineral rights leasing companies tend to be geared toward oil / gas and Craigslist seems to trivialize the value. Previous agreements were for 5%NSR but how to value straight out sale / purchase? Any help would be appreciated.

May 14 01:34 AM

[PutneyHillYank:]

I too like hbmff but what is the hubbub over lmc shares?

May 14 04:48 AM

[GE Smith:]

Editors, I think the author means TCK for Teck in the article, not TCX

May 14 01:33 PM

[Turnipseed:]

Boxed Merlot, post your email.

May 14 03:54 PM

[Boxed Merlot:]

[e-mail]


On May 14 03:54 PM Turnipseed wrote:

> Boxed Merlot, post your email.

May 15 01:17 PM