Base Metal Miners Win UBS Upgrades

With the world recovering from last year's economic collapse, UBS Securities analysts Brian MacArthur and Onno Rutten have made major upgrades to their commodity price forecasts and mining stock valuations.

In a note to clients, they wrote that global lead indicators suggest the world is entering a cyclical recovery, even if China is excluded. And in the case of China, they believe the country is less overstocked than some people expect, even after a huge wave of metal imports through the spring and summer.

They wrote that supply conditions for most metals look tight after many companies cut production and various operations face supply challenges. And they believe global inventories could be stretched once the rest of the world (apart from China) resumes its normal consumption patterns.

"Metal demand has historically sharply rebounded in the 6-18 months after a recessionary trough, and then normalized by 18-24 months after the trough," they wrote.

The analysts upgraded their 2010 price forecasts for nickel (up 43% to US$10.00/lb), copper (up 32% to US$3.30/lb), zinc (up 13% to US90¢/lb), and aluminum (up 19% to US95¢/lb) among others.

As a result, they also raised their price targets on miners across the base metal space, and four of them were upgraded to "buy" from "neutral": Equinox Minerals Ltd. (EQXMF.PK), Quadra Mining Ltd. (QADMF.PK), FNX Mining Company Inc. (FNXMF.PK), and Sherritt International Corp. (SHERF.PK). Their favourite names are First Quantum Minerals Ltd. (FQVLF.PK), Freeport-McMoRan Copper & Gold Inc. (FCX), and Teck Resources Ltd. (TCK).

Comments

[buybigtires:]

We are in the heavy equipment/tire industry, and business has definitely been on the rebound, just in the last two weeks. The mines are beginning to ramp production up yet again. If our business is any indication, then the mining/metals sector is well on its way to recovery.

Sep 02 09:30 AM

[Maxe Paul:]

I was an investor in Equinox earlier this year, a great prospect going forward, though the mine is high risk in Zambia.

I was buying all the way from $2.00 AUS to $3.00, but i think it's a sell over the $3.00 area ATM. Sold at $3.12 from memory.

If the mine can get its production levels up, and figure out how to on sell the uranium credits/deposits its storing, then i think this is a $5.00 AUS stock, maybe higher if further deposits are found from their drilling/prospecting in Africa etc.

There are not many large scale copper mines coming online in the next five years as big as the Equinox Lumwana mine.

Pluses are it's low cost base to mine copper and large size.

Minuses are the location (Zambia) and management needs to up production, cut cost blow outs.

IMO, at current levels you could double your money in a year or two with Equinox, but it is a high risk and volatile stock.

I will look to re enter on a pull back towards $2.50 AUS.

Sep 03 08:36 AM

[Rick S.:]

Buybigtires, it would help if you would tell us all where you do your tire selling business. Are your sales improving in certain states or regions? Overseas?

Sep 03 01:55 PM

[C.S. Jefferson:]

This is almost like forecasting yesterday's sports scores recap!

Talk about being late to the trade--where was this brilliant analysis when commodities crashed in late 2008?


FCX is a tremendous play, of which I am long, but to recommend a buy now after moving over way over 200% net profit off the lows is way late to the game

Quite simply, the risk to reward is not in favor of new entrants to this stock. If you can't resist now, add some put insurance or, at minimum, apply the collar trade to protect against volatility!

Copper has moved well over 100% off the lows and represents a pure play on global infrastructure demand and indirect currency hedging by China through stockpiling of base metal commodities

Sep 04 03:11 AM

[Zekeko:]

yeah way late to this upgrade makes me want to sell

Sep 06 03:24 PM