Around the Markets: A boom for nickel minersadmin
Shares of nickel miners in Australia, the world’s second- largest producer of the metal, may keep rising even as the stocks sell by one measure for twice as much as those of integrated mining companies.
The Chinese demand for cutlery, microwaves and skyscrapers is straining supplies of the metal used to make stainless steel, sending prices on the London Metal Exchange to at least a 19-year high Tuesday. A shortage of nickel will persist until 2009, according to analysts at Goldman Sachs JBWere.
Shares of Minara Resources, Mincor Resources, Sally Malay Mining and Mirabela Nickel have soared 190 percent or more this year, while nickel is up 154 percent. Shares are expected to keep climbing on nickel demand even as China tries to cool business investment and deter factory expansion, said Paul Xiradis, a fund manager at Ausbil Dexia.
“The view in the market is that nickel prices will come back substantially, but prices are firming and rising,” said Xiradis. “The stock has performed very well, and it could move higher if earnings better expectations, and all indications suggest it will be the case.”
Minara’s profit in 2007 may be 30 percent higher than analysts predict, he said.
Minara shares have surged 237 percent this year, Mincor has gained 247 percent, Sally Malay is up 226 percent and Mirabela is 189 percent higher. The S&P/Australian Stock Exchange 200 Resources index, which tracks 41 mining companies, has gained 16 percent.
As measured by net present value, nickel stocks are expensive compared with metals companies like BHP Billiton and Rio Tinto Group, respectively the world’s largest and third-largest miners, said Alex Passmore, head of research at Patersons Securities, in Perth.
Nickel stocks trade for at least double their net present value, said Passmore, who recommends investors sell Minara shares on expectations it would not meet production targets. Net present value is a calculation of the current value of expected cash flows based on, among other things, long-term forecasts of metals prices. Minara share price of 6.34 Australian dollars, or $4.98, exceeds its base net present value of 1.86 dollars, and Jubilee Mines’ 14.23 dollars stock is double its base value of 7.24 dollars, he said.
BHP and Rio are trading at between 3 percent and 4 percent higher than their net present value, said Mark Pervan, head of research at Daiwa Securities SMBC, in Melbourne.
“Some of the pure plays, like Jubilee, they’re good companies, but they have had very strong share price runs compared with, say, BHP Billiton,” said Shaun Giacomo, a fund manager at SG Asset Management in Singapore.
Shares of BHP Billiton and Rio Tinto are up 17 percent and 13 percent this year, respectively.
Still, Chinese nickel consumption has almost tripled in five years, analysts led by Malcolm Southwood at Goldman Sachs JBWere wrote in a report Oct. 31.
The world’s fastest growing major economy may produce a third more stainless steel next year, the analysts in Melbourne wrote. Makers of stainless steel consume two-thirds of the world’s nickel.
Mincor and Sally Malay may rise by as much as 30 percent over the next 12 months, said Peter Arden, an analyst at Intersuisse in Melbourne. Jubilee, the fifth-largest Australian nickel producer, might rise another 20 percent, said Gavin Wendt, an analyst at Fat Prophets in Sydney.
Companies that are starting new mines, like Mirabela, may see the greatest stock gains, said Darko Kuzmanovi, a fund manager at David W. Tice & Associates in Vancouver, British Columbia. Mirabela is developing a project near Salvador, Brazil, and could produce 17,000 tons a year of nickel beginning in late 2008, the company said Oct. 31.
“It’s a situation where opportunities present themselves that could see companies’ share prices jump multiple-fold” even if nickel prices rise more slowly, said Kuzmanovi. He bought Mirabela at between 75 cents to 90 cents this year and expects more gains. The stock closed Tuesday at 2.17 dollars.
Minara, the second-biggest Australian nickel producer after BHP, is spending 25 million dollars to add 2,000 tons of nickel production in 2007. Jubilee is increasing output by 78 percent beginning in fiscal 2009.
Australia produced 210,000 metric tons of nickel in 2005, second to Russia’s 315,000 tons, according to the U.S. Geological Survey.