The mining industry has been caught by natural disasters in the Pacific region, an intense mergers and acquisitions environment and emerging countries eyeing to get a hold on commodities resources, Evy Hambro, MD and CIO of the natural resources team at BlackRock told CNBC.
“I think what we’ve seen this year in commodities really highlights how tight the markets are,” Hambro said in a recent interview.
Last week, Rio Tinto announced copper production falling by 15 percent.
“That is not a bad mine, they’re just suffering things they can’t contain with,” Hambro said, “we saw heavy rain in Queensland(and) wet weather in Indonesia, South Africa, Columbia.”
As an investor, BlackRock “(doesn’t) invest in commodities,” Hambro added, “we invest in the companies that produce them… we are basically analyzing that supply and demand fundamentals for the commodities, making assumptions on what prices are going to trend to over 3 to 5 year view, and see if those price expectations for the commodities.”
With Brazilian, Chinese or Indian demand exploding as the so-called BRIC countries develop, commodity-producing companies are becoming an even more valuable target, putting heavy pressure on their managers, he said.
“We’ve got very, very hungry economies around the world...that want resource assets, and they don’t want to be beholden to the whims of supplies and how they change at a time where they can get their hands on the tons they need,” said Hambro.
These economies might be facing strong competitors in their race to acquire these assets, as mining companies are now enjoying a great deal of cash which could lead to a wave of mergers and acquisitions.
“Our investment style at BlackRock tends to be that we invest in the companies where we see a lot of value,” Hambro said, “what tends to happen in our portfolios is companies get acquired by some of the larger groups, because we’re buying the companies that they see valuable as well. So we don’t buy companies because there will be M&A, we buy because there’s value or there are good prospects in that company… overtime, we have been a beneficiary of M&A trends.”
