BMO Analysts Forecast Strong 2008 for Mining Sector

Source:

The analysts note that junior companies continue to find it relatively easy to raise capital to invest in exploration, and that concerns over asset-backed commercial paper have apparently not dampened investor enthusiasm for risk in the commodity sector.

The cycle of strong metal prices should continue in 2008 and beyond, according to mining analysts at BMO Capital Markets. In their quarterly sector viewpoints for the first quarter of the year, they are upgrading long-term prices for all the major base metals and holding their gold forecast at a bullish $800/oz for 2008 and $600/oz long-term.

In the base metal sector, they expect prices to weaken somewhat next year because of a slowing U.S. economy and slower demand growth from China. But more consolidation looms.

In a note to clients they wrote,

As miners continue to benefit from strong cash flows and have healthy balance sheets, relatively low equity prices may continue to stimulate the current appetite for corporate activity. With the BHP Billiton (BHP) takeover offer putting Rio Tinto (RTP) in play, other contenders are likely to follow.

In the precious metals sector, the analysts are maintaining a positive outlook for gold because of continued market volatility, potentially lower U.S. interest rates, and a weak U.S. dollar...

That leaves the junior exploration plays. The analysts note that junior companies continue to find it relatively easy to raise capital to invest in exploration, and that concerns over asset-backed commercial paper have apparently not dampened investor enthusiasm for risk in the commodity sector.

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