UK mining sector

Results from Vedanta Resources last week indicated that the demand for industrial metals remains strong and does not emanate just from China. Vedanta, which operates predominantly in India, managed to more than double its EBITDA last year, to US$2.7 billion.

Vedanta’s recent success is unsurprising when you consider its enviable track record of turning projects into profitable businesses and the fact that industrial production in the world’s fastest-growing democratic country grew by an impressive 11.3% in the year ended 31st March.

Vedanta’s results mirror the successes reported by other diversified mining giants. Despite this, and the emergence of talk of a possible bid for Rio Tinto earlier this month, the UK mining sector continues to trade on an undemanding rating. Vedanta, for example, trades on a multiple of just eight times this year’s earnings.

According to Sacha Sadan, Senior Investment Manager, even after recent price gains, ratings in this sector appear too low, and will appear even more so if real bid activity materialises. The risk is that China slows dramatically, but this possibility would appear to have been largely discounted by a sector trading around current levels.

Gartmore continues to hold a significantly overweight exposure to the mining sector in its Gartmore UK Focus Fund, and Gartmore UK Growth Fund.