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InvestingSuccess.ca
May 19, 2009
Donner Metals (TSXv:DON)
- A "Green Shoot" Rising
Is the base metal sector gearing up to resume its cyclical advance? Two
of the financial industry's most respected analysts (Donald Coxe & Avery Shenfeld)
say this is indeed the case. With such heavyweights registering their
opinions, investors would be wise to pay attention.
Donald Coxe in a recent speech to the
Prospectors & Developers Conference in Toronto summed up the
situation for the base metals sector very eloquently. He noted that
historically the base metals industry was structured to meet the demands
of the Industrialized World (plus Russia). When the Cold War came to an
end and global military activity took a hiatus, the base metals industry
was left facing massive over-capacity. When the Berlin Wall fell, and
when Russia imploded, the result was a full-on body blow.
But then came the tragic events of 9/11 and the
onset of a new era of war on terror and by extension an increased demand
for military hardware and the start of a new cyclical uptrend in base
metals.
Unfortunately, the world economy has now suffered a stunning interruption
to this cyclical uptrend scenario in the form of a severe financial
crisis and recession brought on by the collapse of several key financial
players. As the investment community liquidated equities in a panic during
the darkest days of this crisis, commodity prices including base metals
took a nasty hit. Copper fell from $4 down to $1.50, and the situation
for aluminum, nickel and zinc was even worse.
But, the tide is turning slowly thanks to massive injections of capital
into the ailing financial sector. Major governments and their central
banks are reflating economies, so base metal
demand will come roaring back. In fact, the financial crisis has put off
so many mining projects, that when the global economy comes out its mess
(and it will) prices for base metals will be much higher than they would
have been otherwise.
What investors also need to remain focused on is the fact that China and
India remain intent on moving forward. These nations did not participate
in the Industrial Revolution (as did much of the rest of the world) and
they will continue making up for lost time.
CIBC analyst Avery Shenfeld echoes these
sentiments and recently spoke of "green bamboo shoots"
springing up in the Asian economy and of factories sparking back to life
as signs of early stages of a global recovery.
Mr. Shenfeld notes that China appears to be the
first country in the region that has turned the corner. A rise in China's
Purchasing Managers Index is one of several signs the worst of the
downturn that idled factories and millions of workers may now be over. He
adds there are also signs elsewhere in East Asia that factories are
getting back into gear, with production edging up 1.6% in Japan in March,
the first material gain in 10 months, and by
4.8% in South Korea. Also supporting base metals demand is an Asian
focused recovery propelled by heavy emphasis on infrastructure in China's
$586-billion US stimulus package.
Despite the metal sector's recent surge, Mr. Shenfeld
said equities are still trading 50% below levels reached in the boom, and
should benefit further from rising commodity prices as firms rebuild
inventories to reactivate production lines.
However, here at InvestingSuccess, we continue
to note that the junior resource sector remains under pressure. The
broader markets have rallied as Mr. Shenfeld
alludes to, but the juniors are still almost comatose - having barely
registered what we would call even a dead cat bounce from the beating
they took in the fall of 2008.
But, to borrow Mr. Shenfeld's expression, there
is a "green shoot" in the junior base metal space that
investors should watch closely. The "green shoot" to note is
Donner Metals (DON-TSXV; $0.20). As previously discussed on past occasions on this website,
Donner has discovered a high grade zinc-copper deposit in Quebec.
What makes the story intriguing is that Donner is partnered with
base metal giant Xstrata on this deposit, and it
sits only 6 km from Xstrata's Perseverance mill. Perseverance runs
out of ore in 3-4 years, and the two companies are anxious to get this
new deposit into production by then.
Because the mill is already there, capital costs for this deposit could
be comparatively, very low. The only thing they need to do is build
a decline ramp down to the deposit. Pretty much everything else is
in place. Xstrata has started a scoping study on the economics of getting
the deposit into production.
Hopefully Donner's "green
shoot" will bloom, and provide a sign to the market that other near
term base metal producers are also ready for investor attention.
SOURCE:
http://www.investingsuccess.ca/index.php?id=3890&tx_wecdiscussion[single]=138
For more information please contact:
Keith Schaefer
Vanguard Shareholder Solutions
Tel: 604 608 0824
Toll Free: 1 866 898 0826
www.donnermetals.com
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