Investors trying to take advantage of rising commodity prices should avoid buying smaller, non-diversified mining companies, a commodities fund manager told CNBC Thursday.
“The mining industry has actually done a very poor job considering the last few years. It’s not really able to generate profits and the question we have to ask is why is that?” asked Christoph Eibl, chief executive of Tiberius Group, a Swiss-based fund manager with around $2.5 billion assets under management.
While the price of commodities such as gold and silver has hit historic highs in the past years, share prices of mining equities have not followed suit.
“Financing has got much more difficult and the exploration business has tumbled,” Eibl said. “Money is being wasted in takeovers. The bonus pools have significantly increased, and the CEOs and management are taking a big chunk of profits.”
Earlier this month, commodities trader Glencore agreed to buy Xstrata in a $90 billion deal that is the biggest ever in the industry, in the face ofopposition from some Glencore shareholders.
Eibl added that some of the bigger, more diversified companies are worth considering. Tiberius owns some of the larger miners within its commodity and fixed-income funds.
“The bigger integrated companies, BHP Billiton, Rio (Tinto) are not just one commodity and have much more risk management. I don’t think they’ll suffer so much from a 2008 scenario as small ones,” Eibl said. “We do have some mining equities like this, but if you want pure commodity price exposure you’re being misled. Look at the commodity, but if you want a properly diversified company you’re fine with Anglo (American), Xtrata, and whatnot.”
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Tiberius Group’s funds own some of the stocks mentioned.