A Move to Metals for Jubak
10/03/2003 12:00 am EST
"The bull market in metals is just beginning," says Jim Jubak, one of the most popular financial columnists and commentators. He is well-known for his column for CNBC on MSN Money. Jubak says, "Mining companies are in the early stages of a growth cycle as demand for nickel, copper and gold increases." Here are two new buys.
"Buy Inco (N NYSE). The nickel market is suddenly very tight. That’s led to a steady, 40% increase in the price of nickel year to date to a recent high of $4.50 a pound. But I think we’re only about six months into a two-to-three year bull market for the metal. That’s because demand for the major consumer of nickel, stainless-steel, is soaring thanks to a strengthening economic recovery in the United States and to continued rapid growth in China. Meanwhile, there aren’t any huge new nickel mines set to come into production before Inco’s Voisey’s Bay and Goro projects in 2006. Using a price of $5 a pound for nickel at the peak of this cycle, which could well be conservative, I get a 12-month target price of $37 a share.
"Freeport-McMoRan (FCX NYSE) is the world’s low-cost copper producer, largely thanks to the extraordinary Grasberg mine in Indonesia and its mind-boggling mix of copper and gold deposits. The mine is simultaneously the world’s second-largest copper mine and the world’s largest gold mine: The combination means that Freeport-McMoRan can produce copper for a cash cost of about 7 cents a pound, compared with the industry average of about 45 cents a pound. But it’s the company’s gold exposure that gives Freeport-McMoRan its extra juice. The company has 44 million ounces of proven gold reserves on its books. Investors are getting a low-cost producer of gold and copper at the early stages of the bull cycle in both metals. Freeport-McMoRan also has one of the best balance sheets among mining companies. I’m setting a 12-month price target of $40 a share."