Gartmore’s Sacha Sadan comments on mining stocks

Mining stocks have soared since Rio Tinto launched its bid to acquire Alcan of Canada for US$101 per share last week. The all-cash bid is the largest ever made in the mining industry. According to Sacha Sadan, manager of Gartmore’s UK Growth Fund, mining stocks have further to travel.

“Rio Tinto’s bid came in at a substantial premium to the all-time-high closing price of Alcan before Alcoa’s earlier bid. This demonstrates that the industry values mining assets considerably more highly than the stock market has done in the past.”

Gartmore has held a significantly overweight exposure to diversified miners in its UK growth funds over the past year and believes that outlook remains good due to demand growth in the global economy and scope for an upward re-rating of the entire sector. Earlier this year, mining stocks soared on rumours that BHP Billiton might be planning a bid for Rio Tinto. The recent upturn in corporate activity comes as demand from the world’s emerging industrial economies continues to gather pace.

Sacha welcomes the proposed acquisition, believing that it would be earnings enhancing for the UK mining giant. “The deal validates the view that there is long-term value in the sector and that the cycle for commodities is longer than the stock market thinks”.

Gartmore’s UK Growth Fund holds an overweight exposure to diversified mining companies, including Xstrata, Kazakhmys and Vedanta Resources.