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BlackRock: Mining Stocks Are Cheap but Strong

Friday, 2 Sep 2011 | 11:50 AM ET

Mining stocks will continue to be cheap because of this summer's volatility, Evy Hambro, chief investment officer of the natural resources team at BlackRock , told CNBC Friday.

"It continues a trend we saw in the first half of the year. In general we’ve seen a compression in the multiples that these companies trade on, and that’s a broader theme for equity markets as a whole," he said.

But mining companies, including Goldcorp, BHP Billiton, and Freeport-McMoran, have "strong underlying fundamentals," he added, thanks to strong metal prices, high margins and margin growth. Hambro said he expected continued growth in commodities in the next few years is "not reflected in the share prices."

Metal & Mining Shares Too Cheap: BlackRock CIO
"The strong underlying fundamentals these metal and mining companies are enjoying today, the strong metal prices, the high margins, the great margin growth we have see year on year, and the growth we are going to continue to see in commodities over the next few years, is totally unreflected in the share prices," Evy Hambro, CIO of the natural resources team at BlackRock, told CNBC.

Hambro's major concern about the miners is they are not doing more to pay shareholders. He singled out BHP Billiton , which raised its dividend but did not "put in place the flexibility for additional buybacks, and I think that was an oversight by management."

Hambro added, "The board could’ve taken the decision to give themselves an opportunity, if the markets were to sell off again, to pick up shares at a low price and continue the trend of returning capital to shareholders."

He is concerned about mining companies making large capital expenditures at a time when demand may be slowing in some parts of the world.

"Mining businesses by their nature are finite and they have to reinvest in new capacity, otherwise the mines run out of the commodities they produce," he said. "So it is important to balance that reinvestment...with balance sheet strength, and then the final part of that is returning capital to shareholders."

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CNBC Data Pages:

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Disclosures:

Disclosure information was not available for Evy Hambro or his company.

Disclaimer

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