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Mining Stocks - Time to Buy

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Joined: 17 Jul 2006
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PostPosted: Sat Sep 30, 2006 6:51 am    Post subject: Mining Stocks - Time to Buy Reply with quote

According to Numis Securities, posted on Mineweb,

The outlook is bright for most of the London-listed large capitalization mining stocks, says London-based independent investment banking and broking group, Numis Securities, in its latest research on the sector.

These include BHP Billiton, Rio Tinto and Anglo American.

"Fundamentally we remain positive on the large-cap mining sector, with a Buy on each stock in the note except Lonmin, where we maintain a Hold recommendation," said Numis.

"Our positive view is supported by extensive DCF (Discounted Cash Flow) valuation work, combined with analysis of the shorter-term share price drivers. We highlight the significant disconnect between commodity futures markets and mining equity markets in 2006, which implies positive risk/reward in our view."

David Fuller's view - I agree with Numis and also Donald Coxe who has persistently pointed out the long-term potential for this sector - see his report posted last Friday. Investors are currently underweight mining shares, influenced by all the hype about a collapse in metal prices. It hasn't happened and even if industrial metal prices did fall by a third and stay down, which I doubt, they would still be above the average levels most analysts are projecting for 2007-2008.

When I bought more Rio Tinto for my investment account last Tuesday, I mentioned that it was a fundamental decision. However technical justification seems to be emerging, evidenced by this upside weekly key reversal. Other leading mining stocks have rebounded in similar fashion this week.

Earlier this month, I mentioned the overrated H&S shape of this pattern, as these appear wherever markets range for an extended period and frequently fail. In this instance, failure to maintain the break beneath 2500p and a further push into overhead trading could easily gather momentum. I expect major mining shares to undergo a bullish re-rating between now and yearend, and move much higher over the longer term.

My view: I agree.
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