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BlackRock Says Global Mining Stocks are Undervalued

Reuters
Friday, 12 Oct 2007 | 4:37 AM ET

Global mining stocks are cheap and trading at large discounts to the broader market because the sector's potential is undervalued, a fund manager told Reuters.

Evy Hambro, a fund manager at BlackRock Merrill Lynch Investment Managers said people are underestimating future demand and overestimating supplies.

"Metals prices are likely to stay strong for a long period of time," Hambro said, adding that it was common for mining stocks to trade at a 30% to 40% discount to their peers on measures such as price to earnings ratios.

"The sector is misunderstood and undercovered."

The discount between diversifieds such as BHP Billiton and British benchmark the FTSE 100 has narrowed recently as miners led the stock market rally after an aggressive cut in US interest rates.

BHP Billiton has a price/earnings ratio around 13 for this year compared with 12 for the FTSE 100. For next year the PE for both is 13, but for 2009 the ratios are 11 and 12 respectively.

Copper miner Kazakhmys has a PE ratio of 9 for this year and for 2008 and 2009 it is forecast at 9 and 10.

"People are focusing on the wrong part of the world. The demand landscape has been redrawn. China represents about 25% of total copper demand," Hambro said.

Hambro manages BlackRock's MLIIF World Mining Fund with assets of around $12 billion. The fund has returned about 30% so far this year.

Old Habits

Perhaps out of habit, many financial and commodity participants still focus on three of the world's biggest economies, the United States, Germany and Japan.

"Today they are still important economies in terms of commodities demand, but China has become the largest commodity consuming nation in the world," Hambro said.

Fears of global economic growth and collapsing house prices in the United States have weighed on metals prices.

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