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Mining shares soar as QE3 sparks recovery hopes

Published: 05:47 14 Sep 2012 EDT

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Shares in miners of all types rose strongly today as brokers said the latest bout of monetary easing from the US monetary authrorities would provide a major boost to commodities.

Federal Reserve chief Ben Bernanke last night unleashed a programme to buy US$40 bln of assets per month until the US economy shows clear signs of recovery.

Shares in gold producers rose sharply today on the back on the new stimulus measures.

Randgold Resources (LON:RRS) jumped 6 per cent to 7,326p, African Barrick gained over 5% to 474.3p, while second liners Cluff Gold (LON:CLF) rose by 4% to 81.2p, Medusa Mining jumped 8% to 386.5p andArchipelago Resources (LON:AR) aded 9%.

Base metals groups also rallied with Rio Tinto up 6% to 3,264p and BHP Billiton (LON:BLT) 4% better at 2,107p.

Swiss broker UBS said the latest bout of monetary easing was "clearly bullish" for commodities and miners.

UBS said the QE3 programme was encouraging for the mining sector in three ways - it is open ended, broadens the Fed’s asset purchases into mortgage backed securities , while there is a commitment to undertake additional quantitative measures if there was no substantial improvement in the labour market.

It now expects capital flows to return to emerging markets, following outflows for much of 2012, something that will halt the cycle of destocking that has hit commodity prices recently.

The Swiss broker also said there is significant potential for sector rotation back into the miners, after 14 straight months of net selling.

The new burst of US easing, alongside efforts by China to boost its economy and an end to steel mill destocking, increases confidence in its 2013 forecasts, it added.

Among the specific metals, copper is well positioned to benefit from QE3 after destocking. Iron ore prices may also recover with seasonal demand towards the end of October.

UBS's company preferences are Rio Tinto (LON:RIO) for its iron ore exposure,  Kazakhmys (LON:KAZ) for operating leverage and copper exposure, Ferrexpo (LON:FXPO) for iron ore and ENRC (LON:ENRC) for its restructuring potential.

Glencore (LON:GLEN) and Xstrata (LON:XTA) are still impacted by the merger saga and Anglo American (LON: AAL) by South African concerns, UBS added. 

Gold, copper, pgms and other LME metals will push higher on the US news, according to broker Fairfax, which expects gold to push though $1,800/oz. Platinum should follow, while copper is headed towards $8,500/t.

“The Fed is moving decisively to end the threat to the US economy and this should stimulate new demand. The US dollar looks like a necessary sacrifice in the short term to restore growth into the economy,” it said.

According to Fairfax, Bernanke has taken decisive action to attempt to end the financial crisis and the move to inject a further $40bn per month should mark an end to the contagion caused by the collapse of value in the mortgage-backed securities market.

 

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