Mineweb, 10 Feb 2008 the mining online newspaper, ran a feature on a paper by staffers of Ernst&Young (coincidentally one of my early employers) The study of metals analysts forecasts of metal prices "have consistently and significantly fallen behind the actual spot market so that mining and metals equities have been (consistently) undervalued".
.That despite the high level of expertise found among metals analysts the accuracy of their forecasts was consistently disappointing. (Almost invariably too low)
.Looking at 100 years of data, current metal prices in real terms ,(ie inflation adjusted) are merely a return to sustainable price levels after an extended period of artificially depressed prices, rather than the conventional wisdom that the industry is near the top of a cycle.
.There have been special reasons for periods of low prices unlikely to be replicated in the near future. They believed the weak prices of the 1990s were substantially caused by the collapse of the Soviet Union, flooded by the disposal of 50 years of accumulated stockpiles mined without consideration of cost, alonside a collapse of demand of the new CIS.(Russia)
. The metals analysts' collective ineptitude has resulted in consistent underinvestment in metals mining and exploration,
.E&Y asserted that metals analysts' forecasts were the most important factor driving valuation. The reading of equity research notes indicated that analysts in the last three years did not forsee price increases in the key industrial metals, copper, nickel, steel and aluminium, then when they caught up they did not forsee that the increases would endure as long as they have.
.Meanwhile large mining companies who are in many ways closer to the market have acted in a far more objective manner and engaged in a large campaign of consolidation to try to secure low cost mines in the face of scarcity. By contrast the stock markets are still catching up.
I would concur with all the above from my own research and knowledge.
It is my own view that there are very few people with a sufficient depth and breadth of education and experience and gumption to do this well.
There are plenty of highly paid "qualified" probably inappropriately, fools writing forecasts furiously. No doubt they like to destroy records of and downplay their old ones. One of the principal reasons mining stocks are as low as they are is that many ill advised by these backroom depressives who herd think that we are at the end of a boom. The statistical fact which should be evident to anyone with any substantial training in economic statistics is that we are not really even in one yet in real terms.
Due to ..Consistently ill advised past underinvestment, ..The high cost of investment in new plant and time needed to develop new mines ..Increasing difficulty in finding and developing economic new resources, particularly in stable and relible safe places ..Exhaustion of existing deposits of many metals ..In an increasingly overpopulated planet
The real high prices are almost certainly ahead of us, not behind. It is really a matter of fairly simple arithmetic. Im a real life analytical and statistical professional. It can hardly be otherwise.
