Numis cautious on metals and miners but picks Fresnillo, Randgold, Petra

Although it remained cautious on the mining sector as a whole, Numis picked out Randgold Resources, Fresnillo and Petra Diamonds as the gems in its quarterly metals and mining report.

With share prices hit hard in the third quarter by the continued slide in iron ore and gold prices, the broker expects riskier stocks in particular to remain under pressure and said the final months of the year look set to be equally tumultuous.

“Cost cutting, dividends, reserve revaluations and asset write-downs are likely to come into focus again, as miners struggle to rebase into a lower price environment.

“There remains value to be had by avoiding riskier assets and broken balance sheets. However, with gold stocks being forced to face renewed weakness in bullion prices, a mountain of oversupply building in iron ore and structural challenges in copper, the path remains clouded.”

Looking at mining sub-sectors, diamonds looks a “stand-out trend reversal”, while no recommendation is easy among copper miners given price headwinds, limited growth and other short-term challenges.

Numis's analysts continue to stand by their defensive criteria, reflected in their top picks, which offer “superior growth profiles to counteract flat to falling commodity prices, high quality assets to weather any downturn and strong management to deliver on business plans”.

Another round of project deferment and capital expenditure cuts are expected in order to preserve balance sheets, while the few mid-cap miners that pay dividends may be called into question.