Lundin Mining Corp. (LUN.TO)

(A Top Pick June 27/14. Down 0.69%.) One of the knocks, which he doesn’t agree with, is lack of visible growth. A lot of their growth is oriented around expansion of existing assets. They are low risk and move the needle 10% every couple of years. They keep the costs down and have no major CapX blowups. You can see 50% of its revenue coming from nickel and zinc, not just copper.

He has less than 1% weighting in the mining sector, and continues to be a little bit cautious, especially because the heavy industrial usage comes out of China, and right now they are really kind of weak in demand. This is a good solid company.

If you like copper this is one of the better ways to play it. Copper stocks are very cheap. Have had some good growth off of acquisitions over the last couple of years. The risk is copper prices in general. If the US$ keeps on rising the way it has, copper prices will remain under some pressure. This is a risk in the short term. Longer-term, global supply is somewhat restrained and he thinks the US$ is closer to the end of long bull market than he has seen for the past couple of years. That should benefit the commodity producers.

(A Top Pick Nov 11/14. Up 4.89%.) Chart shows a rising low from 2011, and he thinks there is an inverted head and shoulders pattern in 2014-2015, which is a very bullish sign. There are not many stocks in the sector, so the inventory is low, so it could be subject to takeouts.

Doesn’t own any mines. He continues to be a little bit cautious. We had a super cycle in mining from the turn-of-the-century until 2010-2011. This correction is going to last longer than people think. It went up so fast and for so long, so it is now going to take a while. This is probably the most attractive name and is probably a pretty solid play.

Materials tend to do well between now and May, and mining stocks tend to be a bit varied from that. You want to be in mining stocks between the start of the year and about mid-February. After that, they tend to be very volatile and gyrate around. There can be underperformance versus the material sector. Start to think about taking profits here, and rotating more towards the broad material sector, such as your chemical companies.

Likes the management team. He doesn't own any companies in the base metal space, largely because of the demand/supply dynamics in the industry currently. Some of the exposure this company has, primarily places like zinc where there isn't as much supply, is a little better. He is far from optimistic on a near to intermediate trajectory for the industry. However, you can do a lot worse than having this if you want the exposure.

The “back end of the market” is the deep cyclicals, industrials and metals. In the miners, inventory is thin and it is an overlooked sector. Thinks the stock is in the perfect spot. Chart shows a series of higher lows from 2011. Doesn't see a lot of downside.

Lundin (LUN-T) or Hudbay (HBM-T)? Owns both because they have the lowest development risk as a percentage of NAV. As to 1) when are they at the end of their big capital spending run, 2) when does cash flow start to get generated and 3) when does free cash flow start, this one is slightly better. This would be his preference, but he likes both.

Metals tend to wait a little for the market to pick up a little bit and some conviction in the economy. Also, emerging markets tend to have a seasonal period that starts later on in November, a little bit later than the broad Western markets. So companies like this will actually start performing well at about that time. It might start earlier, but right now there's no sign of that happening.

This is more of a pure play on copper based on where their properties are and the acquisition they did last week. Copper is clearly struggling at the $3 level, but from what he has seen, a lot of the estimates on copper global production and global demand, it looks like everyone was expecting a $400-$500 thousand surplus coming into this year, but it now looks like it is going to be more of a deficit. Very well-positioned in terms of growth.

It is unlikely to get a sustained tailwind in this sector. Picking a bottom is difficult. Where is money going next – not into this space.

Hudbay Mining (HBM-T) or Lundin (LUN-T)? He likes zinc. Some of the major mines will be shutting down over the next couple of years so the price has been moving very well on base metals for the last few months. Both companies have exposure but this company has more nickel exposure so he would lean more towards Hudbay for zinc exposure. Hudbay is also bringing on mines in Peru, and they will double or triple production of copper, zinc and gold over the next couple of years.

Historically base metals have trouble from May to October each year. But this one still has a trend up. Strength is negative relative to the market and it is below its moving average, so you have 1 out of 3 technicals. He would wait until October to buy it.

Preferred way to play base metals. HBM is not bad either. It has not moved yet to the same degree as others in the sector.