US Edition ENRC
886 -15.5p
Questor says BUY
Kazakhstan-based mining group Eurasian Natural Resources Corp (ENRC) is mainly a play on iron ore and ferrochrome, both of which are used in steel production. Chinese steel output is expected to rise next year, underpinning its markets.
Last week, broker UBS released a report indicating its expectation that iron ore benchmark prices would rise 20pc in 2010. It is believed that some mining groups have targeted a 30pc rise in benchmark prices, but negotiations with China will be long and complex.
Ferrochrome is also important for ENRC, as it is a low cost producer when compared with South Africa, the other main supplier.
The company is also involved in energy generation and aluminium, but Questor is not particularly bullish about the outlook for aluminium. However, the company is using its strong balance sheet, which had $1.9bn (£1.2bn) in cash as of September 30, to expand geographically and by commodity.
Yesterday, ENRC announced it now owns more than 95pc of the outstanding shares in Camec. Its offer remains open for shareholders owning the remaining 5pc. Camec is a cobalt and copper miner based in the Democratic Republic of Congo (DRC).
Most of the cobalt mined worldwide comes from the copper belt of the DRC. Cobalt is an important metallic element and is used in temperature-stable superalloys, which are used in gas turbines. It is also used in batteries.
The shares were recommended as a buy on August 21 at 853½p and they are now just 4pc ahead of their recommendation price compared with a market up 8pc.
The mining sector has fallen sharply this week as the dollar strengthened, but this should be regarded as a buying opportunity. The outlook for the mining sector is positive and, with dollar weakness likely to continue next year, the outlook for commodity prices is upbeat.
Trading on a December 2009 earnings multiple of 19, falling to 11.2 next year and just nine in 2011, shares in ENRC remain a buy.