Our Outlook for Basic Materials Equities

As long as metals prices remain high and borrowing costs stay low, we're likely to see more marginal mining projects getting the green light and fewer projects ending up on the cutting room floor

Elizabeth Collins, CFA 4 January, 2011 | 11:44AM

We expect 2011 to be the year of big spending plans from the mining companies. Metals prices are soaring, borrowing costs are quite favourable, and most major miners will likely shy away from huge acquisitions after having been burned by highly leveraged transactions prior to the downturn in 2008.

Most miners are placing a huge bet on continued strong economic growth and demand for metals in China, India, and other emerging markets. Their views are supported by low per-capita consumption rates in these countries and the strong forces of industrialisation and urbanisation. On the supply side, ore grades are decreasing and world class deposits are increasingly hard to find, and labour disputes are disrupting production in the short term.

Oddly, each major miner claims that it should be able to grow its production of key metals such as copper or iron ore significantly over the next several years. Apparently, each mining company is the exception to the rule that it will be hard to grow production. Instead, we'd argue that only one of the following can be true: Either growth in global output of metals will remain constrained and prices will remain elevated while large miners will face declining production absent major acquisitions; or, mine supply will expand significantly, pushing commodity prices lower towards the marginal cost of supply.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Elizabeth Collins, CFA  is an associate director of equity research with Morningstar.

Audience Confirmation


By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies