Graham Birch, head of the natural resources team at BlackRock, is arguing that investors in mining stocks are continuing to reap the benefits of a prolonged boom ‘super cycle’ in natural resources, which may last for years to come.
He says, ‘The current commodities super cycle is being driven by demand from the rapid industrialisation of emerging markets. Meanwhile, on the supply side, acute shortages of equipment are constraining the launch of new mining projects, driving up costs and limiting supply.’

Sustained demand growth
Birch emphasises that ‘We are now in the midst of sustained growth in demand for natural resources. As emerging markets in Asia and Latin America increase their consumption of metal-intensive products, they will be competing with the developed world for the same raw materials. Investing in mining stocks, which are set to benefit from increased growth in demand and potential merger activity as well as rising profits, is an excellent way for volatility-tolerant investors to take advantage of this trend.’

Exchange-traded commodities (ETCs) provider ETF Securities reports explosive growth in its five physical precious metal ETCs over the past six months. Total assets under management have grown from US$65 million (£32.1 million) to US$800 million.
Nik Bienkowski, head of listing and research at ETF Securities, says, ‘There has been a significant increase in demand for ETCs linked to the price of commodities and particularly precious metals. Most recently, this demand has been for platinum and silver ETCs as investors diversify their portfolios away from equities and bonds.’
He points out that ‘This growth has far exceeded precious metal analyst forecasts. While platinum and silver have seen most of the growth in recent weeks, ETFS Physical Gold is now the fastest-growing exchange-traded gold product in Europe.’

Investors to the fore
This is backed up by figures for gold demand in the third quarter of 2007 issued by the World Gold Council (WGC). Total demand for gold during the period was US$20.7 billion, 30 per cent up on the similar period in 2006.

The WGC’s CEO, James Burton, reflected that ‘It is clear that gold’s safe haven and hedging characteristics have been a major attraction for investors during this period of instability, greater inflationary fears and a falling dollar.’
He added, ‘Looking forward, we believe that investor interest will remain very strong in the near future and that, as the prices stabilise, major gold-jewellery buying regions will quickly adapt to a higher floor in the price.’

But Burton noted that ‘A change in demand patterns became evident during the quarter, as investors, rather than jewellery buyers became the dominant force. At 138 tonnes, investment in ETFs and similar products were at a quarterly record. Demand in India was five per cent higher in tonnage terms in the quarter than one year earlier, a slowdown from the rapid pace in the first half of the year. ‘In contrast, there was no slowdown in demand in mainland China, the quarter brought a further 25 per cent increase in demand.’