METAL analysts’ predictions of metal prices have consistently and significantly lagged behind the actual spot market, and mining and metals equities have been undervalued, according to Ernst & Young’s report EYeSight on Consolidation: Back-Pedaling on the Cycle.
“Metal prices have mostly risen sharply over the past three years, particularly for the key industrial metals copper, nickel, iron ore, and aluminum,” Ernst & Young Global Mining & Metals Center Leader Mike Elliott said.
“It is clear that the metal analysts did not foresee these price rises, or that the price rises would endure as long as they have.”
According to the report, metal analysts’ short term metal price forecasts since the beginning of 2005 have been significantly different from where prices have actually settled, invariably on the pessimistic side, which has led to undervaluations of mining and metals equities.
“We expect further strategic acquisitions to occur in the sector while investment analysts underprice commodities relative to the industry’s own pricing. Our research has shown that this has provided an advantage to companies that made acquisitions, with 96% more total shareholder return than peers that grew organically,” Elliott said.
“The continuing, robust levels of metal and mineral prices are fuelling the drive for growth through acquisition,” he said.
The pace of consolidation in the mining industry is showing no sign of slowing.
Mining companies, not wanting to miss out on key strategic assets, have demonstrated their confidence in medium to long-term metal prices by purchasing other mining companies at what appeared to be a premium in relation to market prices.
In contrast, the stock markets were still catching up, Elliott said.
Ernst & Young