This is Where Metals Insiders are Bottom-Fishing

In iron and aluminum, apparently.

Such a bent became clear last week when former Xstrata CEO Mick Davis announced he is returning to the mining business.

Davis reported that he has raised $1 billion from investors to start a new firm, X2 Resources. The interesting thing is who this financial backing is coming from: Hong Kong commodities marketing firm Noble Group.

It appears that Davis’ new venture will utilize the relationship with Noble to market its mined products. Meaning he will likely focus on commodities that Noble specializes in: primarily iron ore and aluminum.

The arrangement thus represents an interesting insinuation on which metals are seen by big investors and mining industry insiders as the best opportunities today.

Going after iron and aluminum might well be a good play. Both are seeing depressed prices. To point where all but the best mines are probably not making much money.

This could create an environment ripe for picking off assets.

It’s interesting to contrast such bottom-fishing with the still-heated market for metals like copper. Last week, Chinese major miner Minmetals announced it has submitted a bid for Glencore-Xstrata’s billion-dollar Las Bambas copper project in Peru. The project has reportedly also attracted interest from majors globally, in Australia, Canada and America.

All of which suggests the copper market is still going strong. A consequence of this being one of the few metals today where prices are still running at a high margin to the industry-average cost of production.

But copper’s attractive price could also mean that valuations in the sector–both for projects and producers–are likely running higher than for other sectors. If buyers like Davis are indeed looking to other metals to find value, it might be confirmation that the wider investment community should be doing so too.

Here’s to picking your sectors wisely,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

 

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