The conditions that would typically send stocks higher are also the conditions that expand the ratio of the copper price relative to the gold price – but not so this summer.Getty Images
Bring up the current earnings season in conversation, and you're bound to hear comments about investors stupidly riding high on the latest round of quantitative easing, and how they're blinded from the unfolding economic slowdown.
While you could argue that's applicable to all industries, miners at least are buoyed by something more substantive than hot air. Base metals prices at the end of the third quarter were up about 12 per cent from the end of the prior quarter. Copper, for instance, jumped from about $3.30 (U.S.) per pound in August to north of $3.80 (U.S.), before giving back some of the gains.
So yes, investors no doubt have some high expectations from QE3. But higher base metals prices means miners are obviously going to bring in more revenue, all else being equal.
Does this mean everything is rosy? Not exactly. "Global economic data remain weak and we are not yet convinced of a tangible economic recovery to support waning metal demand growth," notes CIBC World Markets analyst Alec Kodatsky.
However, base metals still face constrained supply, and in the medium to long-term, Mr. Kodatsky believes this, combined with rising capital and operating costs, will ultimately prop these metals up. That's the same thing that many of the miners argued in 2011 when they went on an acquisition spree before the commodity supercycle abruptly slowed.
For now, miners will take whatever share appreciation they can get after such a rough spring, and some have already heavily benefited from stronger metals prices in the past three months. Lundin Mining is up 23 per cent during this time, while First Quantum Minerals is up 21 per cent, and HudBay Mining up 22 per cent
Tim Kiladze