[miningmx.com] — A YEAR ago the magazine for which I work, Finweek, asked me to once again participate in a mock share picking competition. I was happy to do so. The previous year (2005) I’d easily won on the back of thriving metal prices. But I wasn’t so sure the market had the legs to carry my hit and miss selections in 2006.
As it turned out, I again outperformed my six peers, and the JSE’s All Share Index return of 30% recording a 42.22% gain having chosen Western Areas and AngloGold Ashanti, BHP Billiton, Mvelaphanda Resources and sxr Uranium One.
The Uranium One pick proved to be the main winner gaining 138.31% followed by Mvelaphanda Resources (up 33%) and BHP Billiton – originally chosen to be defensive, which gained 24%. The golds barely moved.
I enter the competition this year with some trepidation, as before, wondering whether a market correction is in the air for mining stocks. But here goes.
My hypothetical stock selectionfor 2007 (no actual money here!) is again in resources (stick to what you know) with the emphasis on multi-commodity companies to lessen impact of falling metal prices. First, however, my one mineral specific stock:
Sxr Uranium One
Suddenly the blue sky promises of uranium production turn to reality in 2007 as Uranium One’s Dominion mine in SA comes into production. Uranium One now becomes an NPV valuation and with actual production, come actual hiccups. Risky, but management has steely focus and expertise, and the uranium market remains supportive.
Exposed to the energy market through its contracts with the collieries of Anglo Coal, BHP Billiton and Exxaro. Management is cost conscious and entrepreneurial – exactly right ingredients in a potentially falling market. Has picked up exploration business to benefit from Africa’s share of the world exploration boom which is expected to continue in 2007. It’s worth noting that Canada’s Metals Economics Group reported world exploration expenditure in 2006 of $7.13bn although the figure relates to non-ferrous metals, not to coal.
With the import of Lazarus Zim, Mvela Resources has a chairman with considerable rainmaking skills, owing to his chummy relationship with Anglo American. Expect Mvela Resources will loosen its reliance on Gold Fields exposure in favour of platinum (Northam Platinum). Maybe some good news from Trans Hex as well. Good deal/news flow expected.
Again, multi-commodity exposure preferred during these times of potential exhaustion with commodities. Coal and iron ore exposure, but short term fillip from potentially booming zinc prices to which Exxaro is also exposed.
The ultimate mining bellweather. If it can be dug, BHP digs it. Ultra conservative pick if you’re to stay in resources. Has oil exposure to add bit of extra diversity.