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Is now the right time to invest in mining? A research analyst weighs in

Timing is everything. Its a saying that can apply to a lot of situations, and finance is certainly one of them—whether youre looking at buying and...

|Aug 7|magazine7 min read

Timing is everything. It’s a saying that can apply to a lot of situations, and finance is certainly one of them—whether you’re looking at buying and trading stocks or acquiring a property or business, the right timing is crucial. Even the smallest price fluctuation can have major consequences, and the most successful businesses are those who know exactly when to strike.

With commodity prices falling, many in the mining sector have been wondering if now is the right time to buy. To tackle that question, CNBC recently interviewed Paul Gait, senior research analyst for metals and mining at investment research firm Sanford Berstein.

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When asked if the sector has a “buy” rating at current commodity levels, Gait gave a confident yes. “We’ve maintained a buy throughout this kind of weakness,” he said, acknowledging current prices as a flaw in the industry—especially in the iron ore market—that must eventually be righted in order to avoid serious consequences down the line. “If we look at the kind of levels of cash that the mining industry typically generates, and needs to generate in order to maintain the supply of commodities that are just absolutely essential to the world’s economy, pushing prices down much further than this really starts to compromise that ability.”

In the interview CNBC also asked whether there are many potential buyers on the market looking to make acquisitions. Gait also confirmed this, pointing to acquisitions in the past couple of years including Glencore’s purchase of Rio Tinto’s Clermont Mine in 2013 and Barrick’s recent sale of 50 percent stake of its Zaldívar copper mine to Antofagasta Plc.

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“I don’t think it’s a sense that there aren’t buyers for assets,” said Gait. “I think the issue is valuation, not necessarily whether or not there’s an appetite to acquire. [...] I think what there is, is that there’s a mismatch between what buyers want to pay and what sellers want to receive. So the buyers want to pay on-the-spot commodity prices, and sellers want to receive on what they think is a longer term equilibrium fair value. It’s that discrepancy that’s causing the slowdown in M&A activity generally in the sector.”

For a more detailed analysis, check out the whole interview here at CNBC