Metals supercycle remains intact, says Bay Street analyst Ray Goldie

One of Canada’s most seasoned commodities analysts says the long term outlook is bright for key base metals, including nickel, copper and zinc.

Raymond Goldie, Vice-President, Commodity Economics with Salman Partners was in Vancouver Tuesday to talk about the “super cycle,” a term that was often used in the early part of this century when metal prices kept going up in a seemingly relentless fashion.

“We have been in a super cycle since 2004,’’ Goldie told the CFA Society of Vancouver during a lunchtime speech.

But even though the price of key metals has weakened in the past two years, it doesn’t mean the current supercycle is over. Rather it is caught in a “mid-cycle trough,” he said.

“The rebound lies ahead."

The veteran Bay Street analyst, who was widely known for his coverage of iconic Canadian mining companies like Falconbridge and Inco Ltd. before they were swallowed up in the globalization process, said the near term outlook is brightest for nickel.

He said supply is constrained by an Indonesian ban on exports of raw ore, which is affecting China’s ability to produce nickel pig iron, a low grade ferronickel invented in China as a cheap alternative to pure nickel for the production of stainless steel.

“The world needs new nickel mines,’’ said Goldie, who sees the price of nickel heading over US$11 a pound within two years. That’s up from US$6.58 a pound this week.

Investors who want to gain exposure to nickel should look at the following companies, he said, including:

Talon Metals Corp. (TSX: T.TLO, Stock Forum), which is focused on the Tamarack nickel-copper-platinum group metals project in Minnesota, as well as the Trairao iron project in Para State, Brazil.

The stock traded Tuesday at 23 cents, leaving a market cap of $24.6 million, based on 106.8 million shares outstanding. The 52-week range is 58 cents and 16.5 cents.

Sherritt International Corp. (TSX: T.S, Stock Forum), a miner and refiner of nickel production with operations in Canada, Cuba and Madagascar.

Trading at $2.14 on Tuesday, Sherritt has a market cap of $628.2 million, based on 293.6 million shares outstanding. The 52-week range is $4.90 and $2.01.

Royal Nickel Corp. (TSX: T.RNX, Stock Forum), which is advancing the Dumont Nickel Project northeast of Amos, Quebec.

Dumont is billed as potentially one of the largest base metal mines in Canada, and one of the top five sulphide nickel producers globally.

Royal Nickel shares eased 3% to 32 cents Tuesday, leaving a market cap of $35.1 million, based on 109.7 million shares outstanding. The 52-week range is 75 cents and 29 cents.

Goldie wasn’t so bullish on the outlook for copper and zinc, which he predicts will move in a sideways fashion in the near future.

However, he reminded his audience that the price of copper (at US$2.46 a pound) is still healthy, given that it continues to trade at a higher level than at any time before 2006.

This is because of shortfalls in supply stemming from a lack of investment in future mines.

The copper industry also has problems maintaining existing mines at current rates of production, Goldie said.

Meanwhile, the former Richardson Greenshields analyst says the price of zinc is likely to remain unchanged. “Western world demand is pretty flat,’’ he said, adding that China has gone from being a net importer of zinc to a net exporter, a development that he attributes to the growing supply of mom and pop operations in China.