Why BMO’s Tony Robson and Jessica Fung Say Buy, Hold Large Caps Until Commodity Cycle Rebounds

The Mining Report: In February, BMO Capital Markets hosted the 24th annual Global Mining & Metals Conference in Hollywood, Florida, where BMO posed the same 15 questions to both mining company managers and professional mining investors. The answers often illustrated a divide between those two camps. Which side has a better grip on reality? And why?

Jessica Fung: The fundamental difference between mining companies and investors is that they have very different realities in which they make investment decisions. Mining companies, by virtue of their operations, have to make long-term decisions. Exploration, engineering and construction of a mine take years, and then it’s in production for decades. So mining companies have to invest through the commodity cycle, but the challenge now is that the development timelines are longer and capital intensity is higher. Investors, for the large part, still invest in line with commodity price cycles, which tend to be shorter term and more volatile. It’s essentially a mismatch in investment timelines.

Tony Robson: High commodity prices would cure most problems, but as Jessica stated, there is a mismatch between the time horizons. A fund manager can have his investment horizons measured over weeks, months, quarters at best, whereas a mining executive has to look out a decade or more.

TMR: Timelines aside, do you think that these two groups have a firm understanding of each other’s needs?

TR: When you look at the 15 questions we posed at the BMO Global Metals & Mining Conference, there were certainly large gaps between the responses from the investment executives and from the mining executives. Some of those gaps will always remain, but greater dialogue could certainly assist in bringing those two groups closer together.

TMR: Would higher commodity prices get investors and mining managers closer to the same page?

TR: There is nothing like rising commodity …read more

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