Metals still have shiny future, say analysts

London - The mining sector's value, while hit by fears of a global economic slowdown, has a bright future thanks to strong Chinese demand for metals and the difficulty of unearthing resources in Africa, say analysts.

"It is not as rosy as 12 months ago, but we remain bullish on the mining sector," RBC Capital Markets analyst Des Kilalea said last week at the Mines and Money conference in London.

Delegates from the mining and banking industries attending the event agreed that the so-called "supercycle" begun in 2002, which had seen the price of copper soar fivefold in five years, was far from over.

One major reason for this is strong demand for metals from China and other nations with roaring economies, such as India, Brazil and Russia. Kilalea said: "We still believe in the Chinese growth story."

Amid unprecedented demand for metals, including aluminium, gold and nickel from emerging economies, the world's largest mining company, BHP Billiton, is seeking to buy its biggest rival, Rio Tinto.

BHP Billiton has hinted at launching a hostile takeover bid after Rio Tinto turned down an offer worth $153 billion (R1 trillion) earlier this month.

Meanwhile, the mining sector must overcome fears of a slowdown due to US economic growth, which will likely dent demand for metals and other commodities.


"Investors have less capital to play with and are more cautious about where that capital is now employed," said Judith Mosely, the head of mining analysis at Societe Generale.

The US Federal Reserve last week slashed its outlook for next year's growth, owing to rising oil prices and the housing crisis, which has caused a global credit squeeze.

Some analysts have, however, brushed aside fears of slower US economic growth.

Michael Lynch-Bell, a mining expert at Ernst & Young, said at the conference: "The credit crunch is a short-term phenomenon."

Analysts may paint a positive picture for the sector's demand outlook, but prospects appear less healthy regarding output, which in turn is supportive for prices.

Giant mines exploited in the 1960s are reaching their production peak and the rate at which new mines are discovered is slowing.

Meanwhile, the operation of new mines is often difficult because of the high costs involved, technological obstacles and geopolitical tensions in the countries where the metals are found.