Monster rally for mining stocks

Gearing up and turning around

Investors returned to the metals and mining sector in a big way on Wednesday after good news from the world’s two largest economies and metals consumers.

Yesterday, Chinese leaders paved the way for a raft of measures to stimulate the country’s slowing economy while growth figures in the US, although modest came in ahead of expectations.

On the Comex market in New York copper for delivery in March climbed 1% to $2.13 a pound or just under $4,700 a tonne. The red metal is up more than 6% from a six-year low hit a month ago. The benchmark price of iron ore consolidated its rebound from near decade lows to exchange hands for $40.20 a tonne, an 8.6% advance over two weeks. Nickel, lead, zinc and aluminum all gained while crude oil was the top performer with the US benchmark price jumping more than 4% to $37.66 a barrel.

Iron ore and copper are seen as bellwethers for the sector and the brighter prospects convinced some investors that the sell-off in mining stocks had been overdone. There was a broad advance among mining’s heavyweights led by top copper producer Freeport McMoran and two of the biggest losers this year – Glencore and Anglo-American.

Glencore (LON:GLEN) advanced 8.5% in London on Wednesday, bringing its gains since Monday to a whopping 15.8%. The Swiss mining and trading giant is recovering from record lows after investors welcomed a $13 billion debt reduction program that includes asset divestments, stake sales in its agriculture business, budget cuts and streaming deals.

Anglo American (LON:AAL, OTCMKTS:NGLOY) shares surged 10.1% in New York and is up 17.2% over the last three trading days hitting a market value of $6.7 billion. Anglo, the world’s fifth largest publicly held mining company in terms of output, announced a radical restructuring program earlier this month that would see it cut some 85,000 jobs over the next few years as it reduces the number of mines it operates from 55 to the low 20s.

Freeport-McMoRan (NYSE:FCX), which vies with Chile’s state-owned Codelco as the world’s number one copper miner in terms of output, was the best performer on the day, rocketing 16.8%. Volumes were simply massive with more than 66 million shares changing hands, making it by far the most actively traded stock on the New York Stock Exchange.

The Phoenix-based company, now worth $8.6 billion also benefitted from the stronger oil price – each $5 rise in the crude prices adds $170 million to its operating cash flow, while a $0.10 change in the copper price adds $350 million. Reuters reported on Wednesday the Freeport may put up its oil and gas assets up for auction early next year potentially netting the company $3 billion.

Shares in world number one BHP Billiton (NYSE:BHP) also made strides in New York, gaining 5.9%. The $69 billion Melbourne-based company which relies on oil and iron ore for the bulk of its earnings hit near decade lows last month following a catastrophic dam burst at an iron ore mine in Brazil it jointly owns with Vale. Shares in Vale (NYSE:VALE.P), the world’s top iron ore producer, jumped 8% in New York on Wednesday, but year to date losses are still in excess of 60%.

The world’s second largest miner based on revenue Rio Tinto (NYSE:RIO) added 5.7% in New York affording it a market cap of $54.5 billion. The Melbourne-HQed firm has outperformed its peers, limiting year-to-date declines to 35%, as it slashes costs and benefits from the lowest cost base in iron ore, responsible for the vast majority of its earnings.

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