CIBC’s Matt Gibson Sees Upside In Iron For 2013 CIBC’s Matt Gibson Sees Upside In Iron For 2013
4
share0
Brian Sylvester: Investors
who want to play in the iron and copper space should look to small-cap producers for attractive valuations and lower risk, says Matt Gibson, institutional research analyst with CIBC World Markets. In this Gold Report interview, he says he believes iron has found its floor in 2012 and names iron ore and copper companies with upside potential.
The Gold Report: Matt, you cover four companies in the iron space with market caps that range from Cliffs Natural Resources Inc. (NYSE:CLF) at $4.2 billion andLabrador Iron Mines Holdings Ltd. (LIM:TSX) to Alderon Iron Ore Corp. (NYSE:AXX) and New Millennium Iron Corp. (NML:TSX) with market caps around $200 million. In Q1/12, all of them were worth double what they are trading at today. Why should investors be interested in these companies?
Matt Gibson: We have started to see positive trends in the iron ore space. Chinese port inventories have started to tick down, while capacity utilization globally and in the U.S. has started to tick up for steel companies. Iron ore prices have rebounded from lows of $86/metric ton (Mt) to the $118–120 Mt level.
..........................................
TGR: Would you say your view of global economic growth is reasonably bullish?
MG: There are some positive indications and I am optimistic that 2013 will be a better year than 2012, and that will be good for the iron ore sector.
TGR: Let’s move to your coverage, starting with Alderon Iron. Your 12-to-18 month target price on that company is $5.20, more than double its current share price. What about Alderon and its Kami Iron Project engenders that kind of confidence?
MG: Alderon’s management team has experience developing and building these types of assets. Several people on the management team have a background with Consolidated Thompson or with the Iron Ore Company of Canada, which have operated in the Labrador Trough for a long time.
"Copper remains one of the tightest markets from the fundamental supply-and-demand perspective.”
Alderon also has a strong partnership with the largest Chinese steel producer. This is a producer that has only a small fraction of its iron ore supply captive right now.
Finally, there are potential catalysts on the horizon, including the release of definitive feasibility studies, rail agreements and permitting.