CITI Goes Bullish On Miners For The First Time In Three Years GDX, TNR.v, MUX, ILC.v
Deep Value, Commodities, Gold
Seeking Alpha Analyst Since 2006
Now CITI joins our small crowd with its bullish call on miners - it is very important development as now these news will go mainstream with the new money being allocated to the sector. Gold is particularly interesting now with the record high Leverage at COMEX of 112 owners for each ounce of Gold and record low level of Registered Stocks. Copper will be gaining attention as well with Chinese biding for huge Las Bambas Copper in Peru making the headlines again.
Rick Rule: Money Are coming Into Gold And Silver Now GLD, TNR.v, MUX, GDX
"Rick Rules discusses the recent bear market in Gold and what is going to happen in the beginning of the new bull phase. Money are coming into the resource sector again. It is the very big money, which are circling this sector now. Who are the investors? You can guess - they are mostly from Asia - China and Korea, new type of long term investors. There are a lot of opportunities in the market now - we have learned from our previous experience and the valuations are very appealing now for the right plays."
McEwen Mining And TNR Gold: Report - Argentina Is In The Mood For Change On Investment Policy TNR.v, MUX, LCC.v, SSRI, PAA
"Argentina mining landscape is changing for the better according to the report by BN Americas. Lumina Copper is trading above CAD 6.00, McEwen Mining is breaking out to the upside and TNR Gold has found some bids as well recently."
Citi goes bullish on miners for the first time in three years
"We would rather be too early than too late in making this call."
And with that, analysts at Citi moved their 12-month view on the mining sector to bullish for the first time in three years.
Sure, they're concerned about the potential for long-term structural demand for commodities in China, and yes they're aware there could be a seasonal slowdown in the first quarter of this year (as they pointed out in December), but analysts are seeing better bottom-up fundamentals, notably from big diversified miners. Citi's top picks are BHP BillitonBHP +0.84% UK:BLT +1.34%, Rio Tinto RIO +1.46% UK:RIO +1.68% and Glencore-Xstrata UK:GLEN +3.19%.
"Investor sentiment has hit rock bottom. The mining sector has moved through five stages of grief, namely Denial, Anger, Bargaining, Depression, and now we think we are in Acceptance that the sector has moved into a new norm," said lead analyst Heath Jansen, in a note out Thursday.
Amid a clutter of metals-price calls, Jansen foresees a flat commodity-price environment ahead and a reduction in volatility. An improvement in U.S. and European growth will help boost commodities, while weakening commodity currencies - the currencies of major exporters like Australia, New Zealand and South Africa - are boosting miners, he said. On top of all this, miners are cutting costs, improving balance sheets and aligning with shareholders' interests. Because of this, earnings momentum has become positive.
But Citi's advice to stay underweight on gold and base-metal stocks diverged from the opinions of other big investors. DoubleLine Capital founder Jeffrey Gundlach said earlier this week that not only is gold looking good technically - calling for $1,350 an ounce on gold "sooner rather than later" - but he likes those miners as well. Most major gold companies lost at least half their value last year on the gold price plunge.
"Sentiment is as black as night on gold, so I'm actually long on some gold miners," said Gundlach.
His gold call is more bullish than the average investment bank so far this year. Recent forecasts from six big banks (not including Citi) see the metal sinking to $1,209 an ounce this year, an average drop of 14.5% from the 2013 average. The gold-mining sector has a fan in hedge-fund manager John Paulson, who wasreportedly telling clients last year that he won't add more to his hard-hit gold fund, but still likes the miners.
For its part, Citi said its least-favored big-cap miner is Anglo American UK:AAL +1.43%. The investment bank parted company with UBS, whose analysts lifted the stock to buy from neutral, saying valuations are looking attractive after a recent underperformance (by more than 18% over the past three months compared to buy-rated Rio Tinto and BHP Billiton).
Writing for Benzinga on Wednesday, William Briat said now isn't a bad time to go hunting gold mining stocks, which are nearing lows not seen since the fall of 2008. He advises looking for stocks that "are able to produce at an all-in sustaining cost that is below the current price of gold bullion, which means they remain profitable."
While Citi's note is focused on Europe's mining stocks, Briat outpointed NYSE-listed Primero Mining PPP +0.49% . "If a company still has strong assets, a solid balance sheet, and is able to create positive cash flow, this type of firm is of interest to me, especially when market sentiment is so negative," he said.
Marc Faber extolled the virtues of mining stocks at the close of 2013. The author of the Gloom, Boom and Doom report said that given the extremely bearish views out there on gold, silver, platinum and palladium, mining companies are at "relatively good values." Not a new call here for Faber, he's been touting miners for a while.
- Barbara Kollmeyer covers markets for MarketWatch. Follow her @bkollmeyer. Follow The Tell @thetell."
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