Mining Stocks: Value Shopping Opportunities

The “corrective” phase the TSX Mines & Metals sub-index has encountered since peaking in June, with declines of roughly 22%, appears to be the result of concerns that future worldwide demand for metals may be waning. The weakness of many currencies versus the U.S. dollar, along with an apparent rotation out of commodities has also put downward pressure on base metals recently.

But the decline in stocks has been greater than declines in underlying commodity prices, according to Desjardins Securities. Analysts John Redstone and John Hughes noted that the London Metal Exchange (LMEX), a pricing index for copper, zinc, lead, nickel, aluminium and tin, is down 12% since June, while related equities have fallen just 12%.

While both large and small cap names have taken hits, the analysts highlighted shares of smaller nickel companies like GobiMin Inc. (GMNFF.PK)[CVE:GMN] Sherritt International Corp. (SHERF.PK)[TSE:S]and FNX Mining Co. Inc. (FNXMF.PK)[TSE:FNX] that have been punished most as nickel’s decline exceeded other base metals. They also noted that Thompson Creek Metals Co. (TC) Inc. has fallen more than 30% from its peak despite unchanged molybdenum prices.

Given these declines, Desjardins says value investors have plenty to shop for, including some of those names and large-cap miners like Freeport-McMoRan Copper and Gold Inc. (FCX) and Teck Cominco Ltd. (TCK).