Greenwood Trading – The point in the cycle where mining stocks represent a good buy has come around again.
Greenwood Trading: Stocks in the big mining companies are looking particularly attractive again as investors prepare to draw a line under losses on precious and base metals the prices for which are nearing the costs of producing them.
“It costs $1200 on average to dig an ounce of gold out of the ground and prices have plumbed those depths in the last year. Inefficient producers have gone out of business, over investment has been punished while elsewhere, there’s been a lot of consolidation so the time’s right to look more closely at the Barricks, the BHP Billitons and the Glencore Xstratas,” explained Greenwood Trading commodities analyst, Michael Beyer.
The China-based investment house says that it believes the point in the mining cycle has been reached when supply falls short of demand.
“There’s a dearth of new discoveries, funding for exploration has pretty much dried up and, consequently, the foundations for the next upcycle have been laid,” Beyer continued.
Despite its optimism toward the sector, Greenwood Trading says that investors should not be expecting a return to the boom days of 2003 to 2007 or 2009 to 2010.
“Obviously, in this age of easy money from central bank stimulus, no one can really say for sure that the next bubble won’t be in mining stocks but for reasonable amounts of relatively low-risk upside, acquiring a stake in some of the big miners is a fairly sensible bet. We still think the big gains in the sector will, as usual, be found at the junior miner level but, for simplicity, the majors are the way to go ,” concluded Meyer.
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