The sector trade is not dead, but we
believe stock-specific issues are also
pertinent in 2012
 Our top picks are Xstrata, Rio Tinto
(an HSBC Europe Super Ten portfolio
constituent), Kazakhmys and RUSAL
 We downgrade Nyrstar and Norsk Hydro
to Neutral (V)
Alpha mining
In this report, our analysts have taken a deeper dive into stockspecific
issues that may drive the relative performance of their
stocks, both positively and negatively. We are not arguing the
sector risk trade is dead; far from it. Mining stocks have started
2012 as they ended 2011 – driven uniformly by the sector’s
high beta. However, our recent client marketing has revealed
investor exhaustion with this potential uncertainty. Hence, to
answer their most common question – “If I have money in the
miners, where do I add, or subtract?” – this report focuses on
issues that will drive individual stocks.
Meanwhile our answer remains a firm “yes” to the wider
question: “Should I have money in the miners?” Although our
bottom-up commodity analysis (see “Q1 Metals Quarterly”
released today) reveals as many problems with supply growth in
2012 as with weakening demand, physical commodity markets
are still in relatively good shape, and the destocking cycle we
cited as a risk in October has not materialised. From a company
perspective, balance sheets are strong, valuations are attractive,
and organic growth is drawing closer. We are trimming
estimates and downgrading Nyrstar and Norsk Hydro to
Neutral (V), partly on valuation grounds, but also because we
see a lack of stock-specific catalysts. For the global majors, we
are generally raising our target prices.
The 48 stock-specific issues are as diverse as the stocks,
although common themes are the delivery of organic growth,
capital management and M&A. We like high-beta copper
exposure (Xstrata and Kazakhmys) and see positive stockspecific
catalysts. We are attracted to growth pipelines that are
closer to implementation, credible and well defined (Rio Tinto
and Xstrata).