Resources: wreckage in all lanes

In the past five months, the world’s top 20 mining and top 20 oil stocks have surrendered a combined $3trn in market value.




Since around mid-May this year, when the majority of resources stocks peaked out, the world’s top 20 mining stocks have surrendered a combined $1,1trn in market valuation; the comparable loss number for the world’s 20 biggest oil stocks is, in round numbers, $1,9trn, for a combined shed of $3trn. The average big mining stock has lost 64% of its peak value, the average big oil stock a far more modest 47%.

One day, when the dust has settled, it will be shown that the two subsectors, and in particular mining stocks, were a big favourite of speculators and hedge funds, not only in equity markets, but also in commodity pits. Commodities were the drivers of the mania, as seen in the massive corrections that have taken place in a number of commodities, ranging from platinum to nickel, and beyond.

The average losses sustained by listed mining and oil stocks exceeds that experienced by the “average” stock. The MSCI Barra world equities index is now 36% below its highs; the world materials equity index, which includes stocks from the broad resources grouping, has retreated 50% from its highs, marking one of the most severe mark downs of an equities subsector during the crisis that’s swamped global credit, equity, commodity and currency markets.

The New York-based Dow Jones Industrial Index, arguably the most influential stock barometer in the world, has fallen 30% from its highs. The historic price to earnings (PE) ratio of the combined 30 stocks on the Dow is now 12.1 times, compared to 7.8 times for the world’s 30 top mining stocks. In the seeming further restoration of mining stocks to the category of “highly speculative”, investors partook in some particularly vicious selling on Monday.

Norilsk fell by 44% in a single session of trading; Rio Tinto, Anglo American, Xstrata, Anglo Platinum,  CSN and ICL fell by more than 10%, and in its latest trading session this morning, China Coal fell by more than 20%. Among smaller stocks, some deeper falls were witnessed; Katanga Mining, which is anything but a “junior” mining name, fell by 40% in Toronto trading on Monday. Selling was especially savage in Moscow; Gazprom, the world’s biggest natural gas entity, fell by 24% in a day, leaving it 67% off its peak prices.

Exxon Mobil, the leading oil major, and the world’s most valuable stock of any kind, has only retreated in stock price by a relatively modest 20% from its highs; it currently carries a market capitalisation of just over USD 400bn. Newmont, a Tier I gold miner, ranks as the “least damaged” mining major, trading at “only” 40% below its peaks. This reflects the status of gold bullion, one of the least price damaged commodities, trading a “modest” 17% off its dollar price highs. BHP Billiton, which continues to rank as the world’s biggest diversified miner, is now 52% off its high price, seen in May this year.

As for the general way forward, analysts at the Bank Credit Analyst have warned that markets in general “will remain at risk”, even after the TARP (Troubled Asset Relief Program) was passed by the US Congress on Friday. While the USD 700bn package was seen as possibly providing a lift to markets, BCA Research said that “this may prove temporary if not followed up with other measures needed to restore order to global credit markets, including suspension of mark-to-market accounting. Our fear is that policymakers, including many central banks, still do not fully grasp the challenges facing the financial system.

“Governments must effectively guarantee the banking system on both the asset and liability side, and provide more relief to homeowners. Coordinated rate cuts are also necessary to stem the economic damage already evident in the latest purchasing managers’ surveys in the US and Europe. In the end, policymakers will do what is needed; the unknown is whether even more market rioting is first needed. Bottom line: Passing the US TARP is a big positive, but may not be sufficient to break the logjam in global credit markets”.

In his latest communiqué to investors, Bill Gross, MD of Pimco, the world’s biggest bond fund, states: ” . . . expect a lengthy recession but not depression, accelerating government deficits approaching a trillion dollars as forecast here in this Outlook several months ago, and the eventual rise of inflation and longer dated bond yields. For now however, it is best to focus on the potential unfreezing of commercial paper and a globally coordinated policy rate cut. Own the front ends of Treasury/LIBOR yield curves. Agency mortgage-backed securities will also benefit from Treasury buybacks. Stay liquid, remain in high quality”.

World’s dominant mining stocks

 

 

 

Stock

From

From

Value

 

price

high*

low*

USD bn

BHP Billiton

GBP 10.70

-51.5%

7.0%

118.511

Vale

USD 14.46

-67.2%

21.9%

70.854

Rio Tinto

GBP 28.88

-59.7%

5.8%

73.204

Anglo American

GBP 15.11

-59.0%

2.7%

35.619

Shenhua

CNY 22.99

-75.8%

19.2%

54.215

PotashCorp

CAD 95.25

-61.3%

12.8%

26.292

Xstrata

GBP 13.57

-69.4%

6.8%

23.145

Mosaic

USD 37.16

-77.2%

18.2%

16.498

Barrick

USD 30.01

-45.2%

15.3%

26.176

Freeport-McMoRan

USD 43.71

-65.6%

17.1%

16.783

Anglo Platinum

ZAR 545.00

-63.2%

0.9%

14.832

Norilsk

USD 5.60

-83.3%

0.4%

10.675

CSN

USD 14.85

-71.7%

25.4%

11.942

Southern Copper

USD 14.83

-68.9%

17.2%

13.101

Goldcorp

USD 24.65

-53.2%

8.8%

17.962

Alcoa

USD 18.11

-59.5%

8.4%

14.731

NMDC

INR 206.50

-60.6%

2.8%

17.108

Newmont

USD 34.40

-40.2%

6.6%

15.109

ICL

USD 9.75

-62.5%

5.4%

12.435

China Coal

CNY 9.76

-60.8%

16.5%

12.773

Averages/total

 

-62.8%

11.0%

601.966

Weighted averages

 

-63.8%

10.7%

 

* 12-month

 

 

 

 

COMMENTS   4

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Comments on this article are closed.

What would you rather have right now a mountain of anyone of the commodities listed by him OR a pile of scrip in the industrial and banking sector.

So where is his list of these companies that have been routed and will continued to be shipwrecked over the next 5 years or so.Common lets have those lists.

Too busy trashing commodities well I have got news for barry and the dysfunctional punters ,the day has dawned and NOW is the TIME to get into the GOLD SECTOR for all you are worth even in south africa the manipulators won’t be able to stem the flood of buyers that will be seeking that sector within the next 2 weeks .

..both of you got your fingers burnt badly with resources! Trying to vindicate yourselves now? A tad late metinks..

Lemme Guess you went long on resources in June and sold your Firstrands at 1300c? Boo ha ha

Barry has written countless articles on resources and the amount of money that punters have lost. It seems that Barry gets off on this information and gets a high with all the responses. Shame, at his age very little puts lead in his short pencil.

End of comments.

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