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With copper, zinc, and nickel prices surging ahead of an annual rebalancing by major commodity indexes, companies such as Teck Cominco, Quadra Mining and First Quantum Minerals are boasting gains of as much as 50 percent in the first trading days of the new year.
The copper price climbed by more than 7 percent on Tuesday -- extending its one-week gain to 19 percent -- while nickel and zinc have also strengthened, with a weaker U.S. dollar contributing to the rise, analysts said.
"We've had a pretty good rally on the equity side right now, but it's probably not sustainable over the longer term. we'll need something more substantive once the reweighing comes in," said John Hughes, an analyst at Desjardins Securities.
Others say there's been a noticeable shift in sentiment among metals investors, as some have speculated concerns that slowing Asian growth could obliterate steel demand have been somewhat overblown.
"The realization is that the demand tap has not been turned off, it's just been turned down a tad," said Ron Coll, an analyst at Jennings Capital.
The stronger prices, combined with relief from the pressure of end-of-year tax-loss selling, has given a sharp boost to a sector that outpaced the broader market's selloff in 2008.
The S&P/TSX Mining index, which tracks Toronto-listed base metal producers, dropped 68 percent last year -- versus a 35 percent drop for the broader market -- as falling demand pulled metals prices down sharply, while the financial crisis cut off credit for mining companies needing to borrow to expand or sustain their operations.
The index was up 8.3 percent on Tuesday, and has climbed 37 percent in the first three trading days of 2009.
Copper miner Quadra was up 14.2 percent at C$4.18 on the Toronto Stock Exchange, and has climbed 51 percent since Dec 31. First Quantum was up 14.6 percent at C$26.30, hitting a two-month high, while nickel miner Sherritt International was up 10.5 percent at C$4.41 and copper and nickel producer FNX Mining was up 18.2 percent at C$4.61.
TECK FEARS EASING
Teck Cominco, the largest Canadian base metal producer, was down 1.2 percent at C$8.10 at mid-afternoon, after earlier touching a near two-month high of C$8.85, a level that represented a 47 percent jump from its year-end close.
Teck, which mines copper, zinc, and metallurgical coal, dropped 83 percent last year due to the falling prices, and also due to the company's decision to take on $9.8 billion in debt to finance its takeover of Fording Canadian Coal Trust.
The takeover has aligned Teck's revenue closely to metallurgical coal prices, which are set annually at the end of March and are expected to fall sharply in 2009 due to flagging steel demand.
Strong cash flows from coal production are key for Teck to pay down a $5.8 billion one-year bridge loan taken on for the Fording acquisition. In November, Teck suspended its dividend, cut spending, and said it would sell assets in order to focus on paying down debt.
Coll said expectations for coal prices have improved over the past few weeks, which has translated into optimism that Teck will be able handle its debt load.
David Whetham, a resource fund manager at Scotia Cassels, said sentiment in general has improved on Teck, eroding earlier worries that the company might be unable to get the bridge loan under control and have to sell assets.
"If they pay off several billion over the course of the year and the debt's in a more reasonable position, they should be able to refinance," he said.
($1=$1.18 Canadian)
(Reporting by Cameron French; editing by Rob Wilson) Keywords: CANADA MINING/STOCKS (cameron.french@thomsonreuters.com; 416-941-8199: Reuters Messaging: cameron.french.reuters.com@reuters.net)
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