Panmure Gordon’s Kieron Hodgson’s update on the mining sector

Company 6/09/05 20/01/16 6/09/16 % gain
BHP Billiton 1065.50p 581p 1003p 73%
Rio Tinto 2251p 1577p 2334.50p 49%
Anglo American 677.70p 221p 834.40p 277%
Glencore 131.80p 82p 182.70p 123%
Antofagasta 607p 346p 509p 47%
Kaz Minerals 161p 92p 185.40p 102%
Vedanta Resources 517p 213p 498.50p 134%
Fresnillio 602.50p 641p 1685p 163%
Evraz 68.35p 59.5p 132.60p 123%
Lonmin 304.25p 36.75p 206.75p 462%
Randgold 3726p 4416p 7570.80p 71%
DiamondCorp 9.63p 5.6p 7.0p 25%
Gem Diamonds 124.75p 98p 125.75p 28%
Polymetal 466p 530p 1055p 99%
Acacia 243p 162p 497p 207%

 

Panmure Gordon’s Kieron Hodgson’s update on the mining sector – 6th September 2016 – We may need to pause and reflect!

 

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Following the strong run in gold equities ave +50% vs. bullion c10%, but also coincided with a multi month high of $1,366/oz immediately following the Brexit decision, we believe considerably disparity has opened up between the value of gold equities and the commodity.

 

A number of the gold names, Randgold and Acacia in particular, are trading on valuations that suggest far higher gold prices than spot (RRS assuming $2,100/oz & ACA $1,650/oz).  We recently downgraded RRS, CEY and CMCL to Hold, and as such, we are cautious towards the prospects of further share price appreciation and suggest investors continue take some profits off the table, particularly with uncertainty yet consensus view of interest rate increases before the end of the year.

 

Iron ore prices remain relatively will underpinned, despite the continued thesis of lower prices, the Chinese continue to be comfortable with record high inventory levels whilst manufacturing data continues to improve. This week saw expansion indicators at their highest levels since 2014 setting the scene for steady Q4 from the diversified miners.

 

Copper prices will remain under pressure in our view despite positive developments out of China mainly due global copper demand growth of 2.8% versus supply growth of 4.5% led by low cost production in Chile and Peru whose operations have reduced costs to the level where they are profitable at less than $1.00/lb, thus reducing the likelihood of a concerted reduction in global supply growth anytime soon.

 

Zinc’s stellar run continues and frustrates UK only investors with a lack of appropriate investable options. As prices continue to rise on market imbalance, we are cautious of producers, particularly those such as Glencore sticking to their promise of curtailing supplies.

 

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