Bear and endure: This sorrow will one day prove to be for your good. -Ovid
The Philippine Mining index soared to a fresh record high as major mining issues have been on a rampage.
Over the past years, many have questioned my premises and have impatiently chastised me for the underperformance of my pet sector. For me, these people wanted excitement and satisfaction of the ego, more than they desired profits.
And I have always used Ovid’s quote to justify my calls:
Everything comes gradually and at its appointed hour.
Here is what I wrote in November 2009[1],
From this juncture, we believe that the mining index next goal would conservatively be at least 20,000.
With the Philippine mining index at 19,975 or 25 points away, it would appear that NOW is the appointed hour!
It’s not only that the 20,000 level that is in near fulfilment, but most importantly would be how these series of events are being realized.
Again me in 2009, (bold highlights original)
Actions among the mining components appear to be rotational- a classic symptom of bullmarket driven by inflation. This implies that the next major moves could likely come from those that have been in a reprieve.
Market trends are social trends. As mentioned above, the speculative label on the mining industry is a symptom of the lack of social acceptance or persistent aversion emanating from over two decades of depression. Essentially such resistance is psychologically bullish. That’s because despite present levels, only a handful have been invested. In social terms, bandwagon effect occurs when trends are reinforced by confirmation of expectations. In other words, long term trends draws in more converts.
First, today’s fiercely rallying mining issues have been broadening.
The first time the local mining index surpassed the previous record high was due to the blitzkrieg of Philex Mining. Today’s juggernaut has included many other issues as Lepanto [PSE:LC], Semirara [PSE:SCC], Atlas Consolidated [PSE:AT], PetroEnergy [PSE: PERC] and Manila Mining [PSE: MA].
Second, the broad based rally has been winning many converts. Even my mentor who has been a staunch mining critic now trades the sector.
In terms of Peso value traded, the mining sector accounts for 18% of this week’s trade which would have been larger (about 20%) if special block sales is excluded. To consider, the Philippine Stock Exchange has 6 sectors which means the share of the others have been captured by the mining sector.
In addition, the mining sector grabbed the top spot in terms of peso value, in two of the four trading days this week.
These are evidences which continues to manifest how investing in mines and resource sectors have transitioned from the fringes and into the mainstream.
The Rotation to Atlas-APO
The recent actions of the mining sector has shifted to Atlas Consolidated [PSE: AT] and the Forbes 28th richest[2] Philippine tycoon Alfredo Ramos’ investment vehicle, Anglo-Phil Holdings [PSE: APO]
Many have attributed APO’s eye-popping 66% surge this week to the developments of the Atlas Consolidated, from which APO has an 11.67% stake in[3].
Atlas Consolidated, which gained 19% over the week, has reportedly offered to buy her Singaporean partners in a $368 million deal[4], which will be funded by debt and equity.
Some have speculated that part of this equity side of the deal has been designed to include Manny Pangilinan’s entry into Atlas via Philex Mining[5].
That would be fait accompli.
I would have a different story.
The actions of Atlas [green] and Philodrill [blue; PSE: OV], which APO has a .28% stake in, have been tightly correlated with the actions of APO. Such close correlations can be traced way back to 1998. Though the correlation has not been 100%; seen from major trend movements, the APO and AT-OV correlation seem to be in the bag.
Recently, Atlas has been moving higher along with other mining issues. I was partly concerned that the overbought conditions in major issues as Lepanto, Philex and Manila Mining could affect Atlas[6]. Apparently it didn’t.
Also, I spoke about the resurgence in the oil sector[7] which was led by Philodrill. Yet APO lagged as both Atlas and OV ascended. Such deviation presented a buying opportunity for me. [disclosure: I bought APO shares during this window and perhaps got lucky; I have long been a shareholder of LC, PERC, AT]
Then, I can’t say about the specifics of these deals which I would not ever be privy to until after the fact.
Yet since 2003 (see my initial prediction at safehaven.com[8]), I have long been saying that investments trends will favor the local mining and resource based industries considering that the Philippines is a resource rich nation which has mainly been untapped.
Yet I don’t need to know the specifics. I only need to know about the general trend.
And all these forces have been validating my long held premises.
In the 1970s, Atlas Consolidated was considered a blue chip and was traded at php 400s levels.
For me this means that most, if not all mining and resource based issues, will rise far beyond current price levels over the coming years, but will be subject to the flows and ebbs of the global boom bust cycles.
Not only because these sectors represent as investments, but importantly, because resource based securities will account for as hedges against central bank inflationism.
Once the risk of an inflationary panic becomes a reality, where physical metal will get drained from the spot markets, mining issues will likely serve as the next object of the ‘flight to value’.
For now, APO and AT could be short term sells considering the massive moves that has brought them to overbought levels. Yet momentum and bullmarket sentiment can lead them to vastly extended zones similar to what has been happening to Lepanto.
For most occasions market timing for me is about luck, unless one can spot rare arbitrage opportunities as the above.
Yet I always recommend investments in the prism of medium to longer term basis and hardly about market timing or short term scalps.
Importantly, these themes have to be backed by theories that work with evolving general conditions and not just to feed the intellectual ego.
Yet it does surely feel good to get validated anew. I thank my dear Lord for this special insight.
To close, again I quote Ovid,
Time is generally the best doctor.
Indeed.
[1] See Prediction Fulfilled: Philippine Mining Index Tops 9,000 (Now 11,300!), November 15, 2009
[2] Forbes.com #28 Alfredo Ramos, Philippines 40 richest
[3] Anglo Philipines Holdings Corporation Business Interest
[4] Reuters.com Manila's Atlas to fully own Carmen Copper in $368 mln deal, June 24, 2011
[5] Abs-cbnnews.com Philex climbs most in 6 months on Atlas speculation, June 25, 2011
[6] See Phisix: Why I Expect A Rotation Out of The Mining Sector, May 15, 2011
[7] See The Awakening of the Philippine Oil Exploration Sector?, May 22, 2011
[8] Safehaven.com The Philippine Mining Index Lags the World, September 26, 2003
Very insightful sir.
ReplyDeleteThank you.