by Allan Taylor

Created on: May 30, 2009   Last Updated: June 04, 2009

This past year may be you have lost a packet by having investments in banks, auto or finance companies and are now licking your wounds? Are mining companies any better?

The global financial crisis has taken its toll with mining companies too. Firstly, there has been a rapid collapse of many commodity prices due to the worldwide recession caused by the drop in industrial activity. Secondly, the drying up of credit has resulted in turmoil with many companies having problems in refinancing debit and forcing a sell off assets often at bargain prices, to maintain viability.

The mining industry cauldron is churning. There will emerge strong winners to take advantage of the next economic upturn. So what are the best commodity groups and miners to consider for investment right now?

The commodity groups are producers of energy, and that includes oil, natural gas, coal and uranium. Next there is iron ore and aluminum, followed by base metal producers of nickel, copper, lead and zinc. Finally there are precious metal producers of gold, silver and platinum group metals.

Timing is all important. For each commodity or group one needs to know, or reasonably guess correctly, whether the market tide is going out or coming in, or whether a dodge tide exists (stagnation).

The price of gold ($850 to 950) has held up well this year during the GFC as many investors regard gold and gold mining companies as a safe haven for their investment dollar. The biggest gold mining company is Barrick Gold (ABX) which profitably produced 7.6 million ounces in 2008 from 27 operating mines located on 5 continents. The diversified miners have benefited too from having appreciable gold production, like BHP Billiton (BHP), the world's largest mining company. However, once the confidence in energy and metal stocks returns (higher commodity prices), then it is reasonable to expect a decline in gold price and an investment move away from the big gold miners.

The price of iron ore reached unprecedented levels last year boosted by the strong demand from China for steel making and infrastructure projects. Recent contracts with Japan and South Korea (April 2009) have been some 40% less than the peak price which has been a sobering experience for the big iron ore producers in Australia such as Rio Tinto (RIO) and BHP Billiton. Stocks of these big diversified miners are now priced at 35% or more below their last year's peak and look attractive for medium term investment for capital gains and dividends.

Energy stocks are a problem area at the moment as they are awash with uncertainty. They will continue to be so whilst the battle is waged between the global warmers with their renewable energy desires, and the fossil fuel producers whose supporters insist that global warming is a no worry non-problem and that CO2 gas is not an atmospheric pollutant. The UN's Conference on Climate Change to be held in Copenhagen in December 2009 will discuss the matter and decide what if anything should be done about an extension to the Kyoto Treaty on reduction of CO2 emissions.

If the Western democracies decide on imposing draconian cuts to CO2 emissions then expect the present worldwide recession to continue indefinitely. Coal producers will get the thumbs down. Natural gas producers and gold will look good. The only sure energy winner will be uranium. If the global warmers are defeated or effectively nullified then expect a happy return to world prosperity with a boom time for all commodities.

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