Rare and minor earths shares gain in line with higher metal prices
PERTH (miningweekly.com) − Rare and minor metals (RMM) equities had made considerable share price gains in the past 12 months, parallel with the metal prices, equity research firm Resource Capital Research (RCR) reported on Friday.
Sydney-based RCR, which focuses on small and mid-size firms, noted that companies with good quality projects have retained most of their gains from the second half of 2010, and remained close to yearly share price highs.
“Metal prices have risen across the board in the past year, with a lot of the action occurring in the past three months,” says RCR analyst Trent Allen.
“The rare earths get a lot of attention from commentators due to their political and economic sensitivity and some extreme gains in value: an average 679% over 12 months, and 48% over three months, the latter from a very high base.
“Rare earth elements have become symbolic of the profound influence of Chinese policy - tighter export quotas, stockpiling and enforced supply chain mergers - on specialty metal markets.”
The main commodity and equity market driver is China, and it would likely so for the foreseeable future, Allen said.
“China is reforming its RMM sectors, by raising tariffs, reducing export quotas, stockpiling metal to ensure a steady supply, and encouraging consolidation and vertical integration of production.”
China’s stated aims were to increase domestic value adding and use of the RMM, conserve resources, and improve industry monitoring and efficiency. Allen noted that China’s actions could boost global RMM production.
“Other metals such as tungsten and tantalum are at record (nominal) highs, with markets anticipating tighter supply conditions as China moves towards vertical integration and domestic value adding in the RMM space.”
EQUITY PERFORMERS
Globally, RMM stocks have matched or outperformed most exchange-based indices in the past 12 months, Allen said.
The unweighted average performance over one month (to February 16) was up by 6%, compared with 5% for Australia’s ASX S&P300 Metals and Mining Index, and also 5% for the ASX All Ords.
The 12-month performance was up by 118%, compared with the S&P300 Mining and Metals Index, which was up by 25%, and the All Ords which was up by 9%.
The average RMM company share price is 25% below its yearly high and 249% above a 12-month low.
“For equity investors, to state the obvious, the key is to focus on companies with sound fundamentals.
“For explorers that can mean a strong story, with prospective ground, good cash backing and experienced management; for developers, a valuable resource (large and/or high grade), well-tested process route and realistic capital costs; and for producers, offtake agreements to guarantee market share and competitive operating costs to help maintain it,”Allen said.