Speculators Let Rip


"Global mining stocks. . .separated into the haves and the have nots, clang with bells of bubble activity."

If quoted and traded stock prices are the evidence, then the listed global mining sector is showing the endearing signs of a bubble in a teacup. The useful but crude tool of measuring the distance—if any—of a listed company's current stock price from its 12-month high shows up a near-insane chase for a select few dozen names.

A good few dozen listed mining stocks are currently trading at or around 12-month highs, but there are hundreds nowhere near to holding that coveted status. Listed mining stocks have essentially divided into the haves and the have nots, with an increasingly fragile bubble forming around the haves. The bubble may already be there.

The broadly representative top 100 mining stocks in the world, measured by value, are currently worth an aggregate US$1.5 trillion, and are trading 25% off highs, when measured on a weighted basis. These stocks have gained an average of 155% from lows seen in the latter parts of 2008, when the terror of collapsing markets was at its most impressive.

At this juncture, however, the world's 100 most in-demand listed mining stocks are trading a mere 2.2% below 12-month highs. The single most popular subsector within this group comprises stocks that may be broadly classified as gold stocks. These come in all sizes, and often include stocks with interests in deposits that hold more than gold, or may even be primarily devoted to another metal, of which copper is the most popular, followed by molybdenum.

Over the past 10 months or so, measured from multi-year lows, stocks falling under the broad classification of copper miners have staged the best "bounce." Prices for physical copper fell far further than gold bullion, from around US$4.10/lb in mid-2008 to US$1.28/lb in December 2008, but have since recovered sharply, more than doubling.

The chase for hot mining stocks is more global in nature than not, led by Canadian and Australian names. The chase is also characterized by strong demand for stocks involved in merger and acquisition activity, whether real or perceived.

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