Mining sector takes a drubbing

Shares in the mining sector are taking another drubbing today with stocks down on average 2 -3%. Bumi is the stand out faller, giving back some of the large gains last week when the shares rose almost 70%. Weekend press reports that ol Natty is opposed to the Bakries deal to buy back their assets is pressuring the stock – down 11% at the time of writing. Additional worries over the controversial Indonesian family’s ability to raise the $1.2bn of required capital is also weighing.

Our favourite picks – Lonmim (sorry Soc Gen!), ENRC & Vedanta are all easier. The sector wide weakness is derived from modestly weaker commodity prices overnight but the weakness versus a relatively bouyant FTSE is particularly noticeable. Looks like some rebalancing by one of the major funds is in process. Their folly is our opportunity.

Should the year end rally drive the FTSE over 6000 then the Mining sector will be required to participate. The measure of oversold-edness and cheap valuations leads us to believe this catalyst is about to be ignited sooner rather than later.