| Tue 20 Jan 2004, 11:10 | | Anglo American, BHP Billiton and Rio Tinto stocks |
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Anglo American, BHP Billiton and Rio Tinto stocks tipped to peak in 2005
January 20, 2004
By Sherilee Bridge
Johannesburg - London's diversified mining sector recorded gains of a massive 49 percent in 2003. And with commodity prices hitting boom time, analysts are predicting that these global metal and mining stocks will continue to climb towards a possible peak in 2005.
Jack Jones, director of international mining research at CIBC World Markets, believes potential sector upside could translate into a further 15 percent gain this year alone.
"The UK majors ended 2003 strongly, recording an annual dollar gain of 49 percent against the S&P 500's [rise of] 26 percent," said Jones.
Like emerging market guru Mark Mobius, Jones has singled out Anglo American to be the top performer of 2004. Jones sees a potential dollar-denominated upside of 23 percent in Anglo's share price, compared with Rio Tinto's 12 percent and BHP Billiton's 7 percent.
"We continue to see upside potential for both China and commodity prices and, despite increasingly high valuations, maintain a positive sector stance," Jones said in a research report earlier this month.
BHP Billiton was the best performer of the UK-listed resources stocks for the third consecutive year.
According to the CIBC research, BHP Billiton's share price added 51 percent to £4.74, Anglo's shares rose 38 percent to £12.05 and Rio Tinto's share price increased 26 percent £15.25.
Their local listings also fared well, with Anglo gaining R16.52 to close the year at R142.12 and BHP Billiton up R12.62 to end the year at R58.09. By market capitalisation, Anglo is number one and BHP Billiton number two on the JSE Securities Exchange.
Shares in both companies on Friday last week reached their best levels since 2002, as the rand fell to its worst levels against the US dollar so far this year. Anglo lost 20c at R160.80 and BHP gained 46c at R61.29.
Merrill Lynch, in a research report out last week, said Anglo's increased globalisation and reduced "Africa risk" made it a buy. The investment bank named South Africa's largest corporate its global mining "bull pick".
But the wealth-adding potential of these stocks still depends on strong commodity prices and continued Chinese demand.
China - a key factor in metals and share price strength in 2003 - now accounts for about 20 percent of iron ore, copper and platinum markets. Chinese demand is said to be growing more than 20 percent a year.
Jim Walker of Hong Kong's CLSA believes there is potential for China to grow slightly faster in 2004 than in 2003, as new sources of growth are added to existing ones.
Not surprisingly, all the biggest resource groups are vying for a slice of that market. BHP, Anglo and Rio have all flagged China as the next resources frontier.
Merrill Lynch believes global economic recovery, signalled by the year-end strong economic data from the US, will boost commodity prices in 2004.
"We expect earnings to possibly peak in 2005 for many global metals/miners, with a target for peak equity prices a year prior to that, in mid-2004," said Russell Skirrow, the head of Merrill Lynch's commodities research team.
A report on the industry outlook suggested declining risk for local mining companies once long-awaited mining legislation was finalised this year.
