Subscribe to our newsletter

BlackRock’s NYSE:BLK Hambro Bullish on Mines

RIO, BHP

The mining sector is far from yesterday’s news in investor circles, even if some people are yet to shake that feeling of skepticism after recent headlines about cost overruns, delays and output shortfalls

According to fund manager Evy Hambro Chief investment officer of BlackRock’s natural resources equity team, the mining sector is at the moment “rife with investment opportunities.” These opportunities, arising from expected supply shortfalls, should help spur a recovery in share prices after a sustained period of weakness, he said in a note to clients.

Mr. Hambro heads several funds for BlackRock, which manages assets totaling around US$3.7-T.

Thomson Reuters: Gain Access to the Latest Charting and News Technology, Runs on Your Desktop and your iPad , a Must for all Serious traders

Mr. Hambro also argued that the boom times were far from over, countering recent commentary in Australia from people as high up as the nation’s resources minister who have warned the boom is ending.

After a strong decade in which investors looked to tap into companies making record profits on huge new projects, the market value of metals producers has been under pressure in recent times. Even large diversified companies like BHP Billiton NYSE:BHP and Rio Tinto PLC NYSE:RIO have under performed the Australian market year-to-date.

Mr. Hambro said issues such as the aforementioned delays and production guidance misses have kept the valuation of miners lagging the overall market. A particular sticking point that has kept some companies in the doghouse has been the increasing tension between short-term shareholder demands and long-term planning needs, said Mr. Hambro.

“The looming long-term supply gaps make the case for developing new projects more powerful than ever. Shareholders, however, are clamoring for dividends and share buybacks rather than increased capital spending,” he said. However, a lack of new mineral discoveries is sure to prompt a revival in investment interest, particularly for companies tapped into the copper market, where demand is expected to far exceed supply in the coming years, Mr. Hambro said. He said many mining equities now “appear good value”-encouraging words that may lift the spirits of some companies, many of whom have faced a halving in their valuations from their peaks earlier this year.In addition to copper investments, he singled out iron ore companies with low operating costs as attractive due to the large volume of high cost production in the market (which should keep a floor under prices).

His words weren’t so encouraging for some parts of the industry, however, warning investors to avoid “most aluminum makers, nickel miners and zinc producers.” Oversupply in those markets makes any investment risky business, Mr. Hambro said