First Metro Asset Management Inc

Keeping the faith by Gus Cosio

I hope readers who believed in mining stocks, as I believed in these stocks, are seeing a profitable year of the dragon.  The recent run up in NI has been relentless with many skeptics being left flatfooted as the stock zoomed out of reach.  I understand that NI should be able to ship around 2 million tons of nickel this year which should bring earnings in 2012 to around Php 840 million.  This is a back of the envelope forecast which I am making based on cursory information I got from an analyst.  With NI price appearing sky high, I am sure many are wondering whether it is still worth the risk coming in at this level.  I, for one, could have derived a lot more return in my portfolio had I been bolder in adding to my positions.  With stocks like NI, it is really quite important to have faith that the company can deliver on its plans.  I think a good amount of institutional investors are convinced that they could.  I guess the partnership with Glencore has given people a bit of confidence in the stock.

It made me feel the same way as I did with ORE last year.  At the beginning of 2010, ORE slowly deteriorated in price as people could not muster enough confidence in the stock.  This was understandable because ORE yet had to establish a track record; and it did.  I stressed that in mining stocks, the bottom line was the resource base or the amount of minerals that the company can exploit.  At the end of the day, it is the mineral resource that keeps the value.  Production is what creates the profits.  In essence, that is what people are now watching NI to do – to translate these resources into profits for shareholders.  Judging from how ORE was able to do it, I think investors can keep faith that in time NI will be delivering earnings.

If you guys recall, some months ago I mentioned in this blog that analyst earnings forecast for ORE was around Php 600 million.  I was wrong.   The latest analyst update I received apparently has it that on 20 shipments only, ORE should be earning Php850m for 2011.  ORE shipped to China a total of  1.2 million tons of high grade nickel, surpassing the our earlier estimate of 1.1million for 2011.   We reckon the average selling price was $41/ton.

For 2012, shipments are likely to double to 2.4m as daily tonnage could reach 6k tons on two mines operating in Narra and Espanola, Palawan.  It would not be a surprise, therefore, that 2012 earnings estimates could be as high as Php2.6billion  assuming the price of  nickel returns to $41/ton.  P/E at this forecast based on a 2.4m ton shipment of  mostly high grade is a screaming 3x 2012 earnings.

No wonder ORE stock price is flying.

Indeed, the entire market is up save a few laggards like AGI, BEL, LR, EDC, and LC/B, to name a few.  The entire market is liquidity driven which is why conglomerates and banks which should be beneficiaries of a strong economy in 1Q-2012 are skyrocketing.  The stars among the conglos are AC, DMC and SM.  I think the next wave should take MPI with the leaders.  The banks led by MBT should remain with BPI and BDO hanging by its coattails.

The move to emerging markets is as real as it gets.  I believe we haven’t seen nothing yet.  I think that it will really be more fun for investors in the Philippines as volume of trades get larger with greater domestic and foreign interest.  I believe more funds will be pouring into our market as the year wears on.  Like I said earlier, we can keep the faith.

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First Metro Asset Management Inc