Go Overweight Uranium and Fertilizer, Underweight Commodities and Base Metals - RBC

by: FP Trading Desk

Mining analysts at RBC Capital Markets continue to recommend an overweight position in uranium and fertilizer stocks, a market weight position in precious metal stocks, and an underweight of bulk commodities and base metals stocks.

The global team updated its 20 Best Ideas portfolio with seven new names but left the recommended weightings for the third quarter unchanged, saying we remain in the early part of a global economic recovery.

The analysts are taking profits in Thompson Creek Metals Co. Inc. (TC), Peabody Energy Corp. (BTU) and UR Energy Inc. (OTC:UREGF), while reducing exposure to South Africa and the stronger rand by removing DRDGOLD Ltd. (DROOY) and Eastern Platinum Ltd. (OTCPK:ELRFF) They also switched out of IAMGOLD Corp. (NYSE:IAG) and Uranium One Inc. (OTC:SXRZF) in favour of lower risk names.

RBC is adding BHP Billiton Ltd. (NYSE:BHP), Energy Resources of Australia Ltd., Uranium Participation Corp. (OTCPK:URPTF), Kinross Gold Corp. (NYSE:KGC) and Intrepid Potash Inc. (NYSE:IPI) as lower risk investments given their trading liquidity and financial strength. Sherritt International Corp. (OTCPK:SHERF) gets the call for its nickel and energy exposure, while Neo Material Technologies Inc. (OTC:NEMFF) is a play on rare earth elements in China.

The analysts expect the uranium spot price will continue to rebound as production cuts from 2008 impact supply and Asian power utilities look for long-term contracts. They also expect the recent indications for Indian potash price settlements to have positive implications for both ongoing negotiations in southeast Asia and the equities.

As for precious metals stocks, RBC anticipates that the gold price will rise as Indian demand rebounds in August through September. They would buy shares on near-term weakness as a result.

While base metals performed well in the second quarter, partly as a result of strategic buying from China, the analysts feel equities are reflecting mid-cycle valuations and remain risky given the weak global economy. They also see no near-term positive catalysts for bulk commodity prices.

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