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An exchange between GATA and Pan American CEO Ross Beaty
By Barbara Kollmeyer
CBSMarketWatch.com
Saturday, May 8, 2004
http://cbs.marketwatch.com/news/story.asp?guid=6E08976A-34AC-4C63-
8603-7D666BB097D1&siteid=mktw&dist=nbs
LOS ANGELES -- Chinese leaders are openly trying to
slow the country's overheating economic growth, and
shares of commodity producers and other recent
beneficiaries of China's boom are tumbling.
Yet to some investors the rout signals a buying
opportunity.
"There's too much ado about a China slowdown," said Jim
Collins, chief investment officer at Insight Capital
Research & Management, a Walnut Creek, Calif.-based
investment adviser. "Stocks have overreacted."
For example, Australian miner BHP Billiton is down 15
percent from its February high, while Rio Tinto Plc, the
Anglo-Australian mining group, is off 20 percent since
January. Shares of U.S. copper giant Phelps Dodge
Corp. have shed 25 percent since March.
"The assumption by some players in the market is that
you're going to change the direction on prices overnight
in some of these materials," Collins added.
But, he noted, "supply is limited and demand is still high
and will remain high for the next several months."
Indeed, even as Beijing attempts to engineer an
economic "soft-landing," China's economic growth will be
robust by any standard, said George Hall, metals and
mining analyst at mutual-fund company Payden & Rygel
in Los Angeles. He said the Chinese economy could
expand 8 percent this year, vs. 9.1 percent in 2003.
"A lot of that growth is coming from government
encouragement of electricity, highways, railways and
basic infrastructure," Hall said. "All of these will take
steel, oil, coal, and electricity."
With commodities-sector volatility so high and materials
prices historically strong, investors should be careful not
to get whipsawed by short-term swings, Hall added.
These stocks are cyclical, he said, and most appropriate
for shareholders with a multi-year investment horizon.
The long-term case is bullish, he added. "This is a little
bit of a unique time frame," Hall observed. Commodities
producers aren't able to meet demand, he said, owing to
a period a decade ago when many mining companies
were losing money and little cash was earmarked for
exploration and production.
One company weathering the changing environment is
Newmont Mining Corp., Hall said.
The U.S. firm produces a broad array of metals and is
geographically diverse, he noted. The stock is off roughly
30 percent since January, and Hall said he'd buy at around
$35 a share, about where the stock traded on Friday.
Setting aside the unpredictability now gripping commodities
stocks, demand for natural resources is in a long-term
uptrend, said Fred Sturm, manager of the Ivy Global Natural
Resources fund.
Commodities have recovered from oversold levels seen in
2000, when prices hit 20-year lows, he added, and are
midway through a cycle that could last another decade,
he added.
"We believe we are in the 'big fat middle' where commodity
prices tend to trade at levels which allow reasonable return
on capital deployed," Sturm said.
Sturm said he isn't concerned about a potential drop in
Chinese demand, nor does he fear a repeat of the bust
that followed Asia's last boom in the late 1990s.
Rather, as the cycle matures and natural resources
become scarcer, he predicts another spike in raw materials
prices.
"The entire trend of urbanization and westernization of
emerging markets [such as China] is the extra that has
sponsored, and will continue to sponsor, opportunities for
outperformance in the basic materials sectors," Sturm
said.
The Global Natural Resources fund locked in profits on
commodities stocks earlier this year on concern about
overvaluation, he said.
While he expects further selling, Sturm said the
correction is bringing shares into more reasonable
territory. One stock in his sights is Companhia Vale do
Rio Doce, the world's leading iron ore miner.
"At recent price levels," Sturm said, "we are within 10
percent of a fairly emphatic buying opportunity."
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