Joe Friday

How Low Can Mining Stocks Go?

the large growth in demand for base metals over the last decade has been from the BRIC countries. Those countries may have slowed down in their pace of growth, but they are not in recession. The demand at the margin will fall while the developed world goes into recession, and some of the supply pipeline will be shutdown. In turn, as supply falls from the market and the growth continues in the developing world, pricing pressure will again return to the base metal. While nobody can predict with certainty when demand will again exceed supply, it seems clear that it will do so (unless you believe that the BRIC countries will not continue to industrialize). Patient investors who buy at the levels these stocks are currentlly trading at, will be rewarded.

Some True Safe Havens Are Still (Surprisingly) Undervalued

Note that it takes many years to bring a mine into production, and a lot of capital. Shutting down a mine in light of a fall in commodity prices is a very expensive decision. A company would not typically take such a decision, unless it comes to the conclusion that the commodity price has fallen below its cost of production, and the pricing for that commodity will remain suppressed for a long period of time (the losses from continued operation will be greater than the cost of shut down and subsequent start up when prices recover)
There have been a few mining closures during the last few months, and many more will follow if the commodity pricing complex remains suppressed. Naturally, these decision will result in reduced supply, which will lead to increased pricing, and so on. These cyles play out over many years however, and you may need to wait a few years for your thesis to pay off.