The Metals Markets Keep Getting Hotter By Lawrence Roulston...

The Metals Markets Keep Getting Hotter


By Lawrence Roulston Printer Friendly Version
May 8 2007 9:47AM


www.resourceopportunities.com

With metal prices at all-time highs, investment dollars continue to pour into the metals markets.

The following is extracted from the April 2007- 2 Issue

Investments in metals over the past couple of years have been primarily directed to the major producers. With the shares of the big companies reflecting the present elevated metal prices, investors are now looking for other ways to find value in the metals sector.

One recent approach has been to focus on secondary metals. Sprott’s molybdenum fund is one example. Hedge funds are now also chasing other exotic metals, such as cobalt and vanadium. Uranium is now going to be traded on a commodity exchange. (It will be interesting to see the details regarding physical delivery.)

This intense investor attention has pushed up prices of the major companies, and most of the mid-tier companies, to levels that don't leave a lot of room for further appreciation.

One area where investors can still find exceptional value are the exploration and development companies. To a large extent, many of these companies are ignored by the big finds because they are simply too small. A significant investment from a fund in some of the small companies would put the fund over a 10% ownership, making them insiders. Another consideration is that the small trading volumes do not permit the funds to build a position or to offload their shares in a timely manner.

Even for the larger exploration companies, most of these funds do not have the expertise to evaluate a company at the exploration or development level. That is why most of the funds wait to invest after the company has completed a feasibility study. That independent evaluation effectively puts a value on the company upon which the funds can rely.
As individual investors, we can participate in exploration and development companies, with the ability to get in and out without too much difficulty. These companies provide exposure to the metal markets… and also provide the benefits of investing in emerging companies.

There is a movement among the institutional investors to move down the ranks, already having gone from the majors to the mid-tiers, with a few funds actively participating in the larger exploration companies.

At the same time, the small companies are growing, through internal developments as well as mergers.

The summer doldrums will soon be settling over the markets. However, I believe that the new money coming into the metals markets will increasingly find its way into the small companies. While many companies may see their share prices drift lower, companies that generate meaningful results – and those that can attract the attention of institutional investors – should continue to enjoy appreciating share prices.