Investors Snap Up Shares in Big Miners – by Anjani Trivedi (Wall Street Journal – March 13, 2014)

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Weaker emerging-market currencies offset lower commodity prices

Despite plunging commodity prices, investors are buying stocks of large mining companies as weaker emerging-market currencies prop up profits.

From Australia to Indonesia to Brazil, countries where most global miners operate, currencies fell by 15% to 20% against the U.S. dollar last year, bringing down costs including local wages and expenditures on new projects and offsetting weak prices of commodities such as iron ore and copper.

That’s helped Anglo American, AAL.LN +0.04% BHP Billiton BLT.LN +0.28% and Rio Tinto record the largest gains from foreign-exchange moves in a decade, according to quarterly earnings reports released recently. The S&P/TSX Global Mining Index, a broad gauge of diversified miners’ performance, is up 7.07% so far this year, a reversal from a 20% drop in 2013.

“Over the last year, we have increased exposure to the mining sector as the valuations have become more attractive,” said Olivia Engel, Sydney-based head of active quantitative equities for Asia Pacific at State Street STT -1.42% Global Advisors, which has $2.3 trillion under management. “Their balance sheets are in good shape, they are a good value, and they are paying out good yield.”

Ms. Engel says they are looking at “higher-quality larger miners” and “finding more attractive opportunities there compared with eight to 12 months ago.”

Currency depreciation in many of the world’s emerging markets is a welcome relief to miners, which had scaled back spending in recent years to help protect profits as the U.S. dollar weakened and commodities fell. Slowing growth in China, the world’s biggest buyer of commodities, was especially alarming and had pushed stock prices lower.

“Miners’ earnings have been hammered for the last three years by falling commodity prices and stronger currencies,” said George Cheveley, a portfolio manager on the commodities and resources team at Investec Asset Management in London, which has $107 billion under management. “The fact that we’ve got some relief now—although people say it isn’t sustainable—arguably, it was needed. It hasn’t overshot yet, we’ve just got back to what should be a more normal level.”

Mr. Cheveley’s fund has increased its positions in diversified miners over the last few months, marginally shifting away from energy companies.

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