global players provide barometer

Platinum action

For those willing to trust the judgment of the largest global mining companies, their latest acquisitions demonstrate where industry players are finding value.

Xstrata's $US10 billion hostile bid for platinum miner Lonminis no doubt opportunistic - as all bids are - since the South African target has faced operational difficulties. But it is also a punt on the platinum price.

Lonmin is listed in London, but the Australian market also hosts a few companies with big exposure to platinum. And unlike the big incumbent players in South Africa - Anglo Platinum, Impala Platinum and Lonmin - the Australian-listed miners tend to have shallower projects with lighter power requirements.

That helps overcome two major issues - safety and South African power shortages.

The platinum price has fallen steeply in recent months, in part over worries about demand from its main customer, the automotive sector. But for investors willing to follow the lead of Xstrata - perhaps the savviest mining investor of the boom cycle - Aquarius Platinum, Platinum Australia and CopperCo offer solid exposure to the rapidly consolidating South African platinum sector. On Friday Aquarius ruled out a mooted counter-bid for Lonmin, but said it was still examining other corporate opportunities.

Copper constraint

Following steep price falls over the last year, nickel and zinc are trading at a price that has rendered many mines uneconomic and led to closures and cancellations of new projects. Yet another base metal, copper, has managed to maintain a price well above the marginal cost of production.

The difference is supply. There is a surplus of nickel and zinc in the market, but supply constraints mean there is not enough copper to go around. Mines like the giant Escondida joint venture between BHP and Rio face falling grades and newer projects in central Africa and Mongolia have faced delays and uncertain fiscal regimes.

That leaves companies with significant global copper projects in a favoured position.

OZ Minerals has faced a massive sell-off due to the weak zinc price. But its financial situation will improve once its Prominent Hill copper-gold mine in South Australia starts production by the end of the year.

Equinox Minerals has seen its shares sold off following a start-up delay due to a fire and uncertainty over the fiscal regime in Zambia. But its flagship Lumwana project remains an attractive, world-class asset.

Other interesting copper plays with slightly smaller projects include PanAust, which owns the Phu Kham mine in Laos, and Citadel Resource Group, which is developing the Jabal Sayid project in Saudi Arabia with some help from the old team at Oxiana.

Bulk returns

A list of the top-returning mining stocks since the start of the year is heavy on bulk minerals. Coalminers Centennial Coal, Felix Resources and Macarthur Coal rank among the best.

With steelmakers scouring the globe for raw materials, Merrill Lynch does not expect the dream run for iron ore, coal and manganese to end soon.

"We believe the market will be hugely surprised on the upside," the broker wrote last week. "The ability of steel companies to pass on these increased costs of raw materials is a key - our view is they can and the work we have done on their margin and returns trends historically proves they have been."

That would place companies like manganese miner OM Holdings and coalminer Aquila Resources in a favoured position. Aquila also offers exposure to earlier-stage iron ore and manganese projects. On Friday it released the prospectus for its proposed demerger, which will fold the least-developed assets into another company, Aquila Exploration.
Copper constraint

Following steep price falls over the last year, nickel and zinc are trading at a price that has rendered many mines uneconomic and led to closures and cancellations of new projects. Yet another base metal, copper, has managed to maintain a price well above the marginal cost of production.

The difference is supply. There is a surplus of nickel and zinc in the market, but supply constraints mean there is not enough copper to go around. Mines like the giant Escondida joint venture between BHP and Rio face falling grades and newer projects in central Africa and Mongolia have faced delays and uncertain fiscal regimes.

That leaves companies with significant global copper projects in a favoured position.



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