Goldie says buy industrial metals

Though global growth expectations have been tempered over the past year based on slowing demand in China and the US, the end of the cycle is not nigh. The fall was from a high base and China’s policymakers are taking corrective action to support demand, Goldman said.

Global growth . . . is still sound in absolute terms, ie it implies demand growth that is above supply growth for the majority of commodities. Meanwhile, the lack of tangible capital expenditure on growth projects means that supply growth across the majority of commodities is negligible. As a result, we remain positive on most commodities overall.

Goldman

If metals prices fall, mining shares should prove resilient as, compared with previous downturns, their balance sheets are stronger and their returns are higher, Goldman said. It also said that a US slowdown would weigh on the dollar, which would be positive for commodity producers, and argued that, with the exception of zinc, supply growth remains scarce.

Its top pick in the sector was Anglo American, with the broker also repeating “buy” advice on BHP and Glencore.

 

Cynical Investor

Cynical Investor blogs at Thoughts of a Cynical Investor

 

 

 

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5 Responses to “Goldie says buy industrial metals”

  • oxygen:

    IN WRITING THIS CONTRIBUTORY PIECE, I WONDER OF COMICAL INVESTOR understand the “Greek” in these mineral quantification and its implications?

    https://www.angloamerican.com/~/media/Files/A/Anglo-American-PLC-V2/documents/annual-updates-2018/aa-ore-reserves-and-mineral-resources-2017.pdf

    Anglo American is a South African mining giant, its CEO is Mark Cutifani, a dinky dye OZ running a very difficult diversified mining operation across different commodities, principally in difficult sovereign jurisdiction of South Africa, Brazil and Peru.

    AA big sectors are diamond, metallurgical coal and new developments in copper – Quellaveco copper in Peru. AA is small in nickel – copper and nickel are big global demand metals relevant to electric car which AA is now weakly represented in its production mix profile.

    Of course, Quellaveco is the elephant in the room – difficult of financing. It is approved for development costing at least US$5 billion. Forecast IRR after tax is only 15%

    https://www.angloamerican.com/media/press-releases/2018/26-07-2018a

    JV partner in Quellaveco, Mitshubishi of Japan, up its stake to 40% to take up a bigger stake and funding share. Is there no bankers want to part take this Peruvian project?

    And looking at the share price history of AA, it already climbed a STAGGERING RUN UP of over 800% from its two year low of January 2016.

    Who dares (rushing in) wins?

    I prefer spectator sport in this instance. Better harvest relative to risks lies elsewhere I suspect.

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  • pap liars and their sycophants:

    did not read the above.

    never read anything by pap or by pap PA or by pap PA paid IBs.

    why the Lj is always posting here in TRE boggles the mind since the pap PA paid IB b/s is never read.

    pap says go green but its pap PA paid IBs all waste byte space. what a ffffing hypocrite these pap Ljs are.

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  • oxygen:

    @ Comical Investor

    ARE YOU SURE GOLDMAN SAID THESE WORDS below? Or was it you got all your knickers in a knot?

    Comical Investor:If metals prices fall, mining shares should prove resilient as, compared with previous downturns, their balance sheets are stronger and their returns are higher, Goldman said. It also said that a US slowdown would weigh on the dollar, which would be positive for commodity producers, and argued that, with the exception of zinc, supply growth remains scarce

    Anyone steep into mining shares “casino betting” knows from historical past that METAL PRICES DO FALL and sometimes THEY FALL MORE THAN 20% IN LESS THAN 6 MONTHS.

    In contrast, if the US dollar in which commodities are priced and traded in fall more than 10% in one year, it is CATASTROPHIC of global consequences. This has never happened to my knowledge.

    Refute me if you can.

    If Anglo-American feasibility study conclude that it expects only 15% IRR (Internal Rate of Return) and copper price, if hypothetically happens fell by 30%, what would happen to the survival of Quellaveco copper development project now under construction in Peru?

    oxygen: Of course, Quellaveco is the elephant in the room – difficult of financing. It is approved for development costing at least US$5 billion. Forecast IRR after tax is only 15%

    https://www.angloamerican.com/media/press-releases/2018/26-07-2018a

    The 15% IRR is based on the date completion of the feasibility study – copper prices could be higher or lower now. My take is that given the volatility of commodities prices, the expected IRR of 15% is bikini return relative to risks – looking at 5 year historical price ranges for industrial metals at Kitco.com.

    What would happened to the US$5 billion investment in Quellaveco Copper project which Anglo American’s share is US$3 billion?

    If forced to write off this amount, what will happen to its balance sheet and share price?

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  • TL Tan:

    Goldman Sachs is very rarely wrong and on this topic, they are spot on again. The slowdown in China’s real estate sector was self-inflicted. If needed, the Chinese govt can easily push the state-owned banks to turn on the credit taps to finance construction activity. Any US slowdown would also be minimal. Urbanisation in emerging economies continues apace. The copper price is stable, now at $6200/MT (actually it has increased). The global economy may experience a slowdown in growth rates, but not outright contraction. Finally, employment markets and wage growth continue to be strong.

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  • oxygen:

    @ TL Tan

    OI OI OI, VIRGIN COMMODITIES TRADER, what has your facile farts (your usual) below particularly on the price of copper relevant to SC strong’s recommendations on Anglo American? Or for that matter BHP or Glencore?

    TL Tan: Goldman Sachs is very rarely wrong and on this topic, they are spot on again. The slowdown in China’s real estate sector was self-inflicted. If needed, the Chinese govt can easily push the state-owned banks to turn on the credit taps to finance construction activity. Any US slowdown would also be minimal. Urbanisation in emerging economies continues apace. The copper price is stable, now at $6200/MT (actually it has increased). The global economy may experience a slowdown in growth rates, but not outright contraction. Finally, employment markets and wage growth continue to be strong.

    For Anglo American, copper sales is only a peanut contribution to its revenue base. And its next copper development project now under construction – Quellaveco Copper won’t be expected to come on stream at 2022 at earliest without any bottleneck assumed.

    So why tell tall story of fiction on copper price now in relation to Anglo American said to be top pick of Goldman Sach?

    Resources nationalism is on the rise in Africa and Brazil and Anglo American might find itself slapped with a huge resources tax unthinkable just like this one. Acacia mining, a spin-off from Barrick Gold, cannot resolve this nightmare.

    Acacia Mining now hit with $190 billion tax bill in Tanzania

    http://www.mining.com/acacia-mining-now-hit-190-billion-tax-bill-tanzania/

    African nations must resist siren song of resource nationalism

    https://www.ft.com/content/af216094-aab9-11e8-89a1-e5de165fa619

    Anglo American is big in South Africa and Brazil.

    YOU IDIOT!!

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