Dunndee Base Metal Report

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Sources: Dundee Securities, Bloomberg

We believe that 2013 will generally be a better year than 2012 for the global miners.



We expect the global economy to be stronger in 2013 as the emerging market economies, especially China, lead global economic growth. More precisely and as depicted in the above chart, we believe that mining stocks should benefit from the combined effect of QE3 together with a growing Chinese economy (we used China's PMI index and the TSX Mining index as proxies). Weak economic growth has recently seen Japan, Sweden, Turkey and the Czech Republic lower interest rates or look to unconventional policies to stimulate growth. These efforts should increase the appetite for risk and boost demand for stocks and resources. QE3 and the fact the Fed will be printing more money to buy mortgage backed securities implies that the US$ should be under pressure (or at least remain flat) against global currencies for the foreseeable future. This is positive for mining stocks. This report discusses our economic outlook and its impact for base metals and coal companies and also highlights the impact of our new commodity prices forecasts on our coverage universe.




We believe July 2012 saw a double bottom in the base metal and coal equity markets and we expect an economic growth spurt in H2/2013, which should be positive for miners. We also believe M&A activity will be focused on assets in 2013 (rather than full company acquisitions), as the large diversified miners (i.e. Glenstrata, Anglo and BHP) could potentially divest some of their project inventories. This could benefit the intermediate producers such as LUN, HBM and CS which are looking for potential acquisitions