74 SMe Mining engineering handbook

9
Anglo American
8 Xstrata
7

5
Index

0
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
figure 2.4-1 Relative share performance between xstrata and Anglo American,
March 2002 to May 2008 (indexed March 1, 2002 = 1)

3.5 40
Mount Gibson Iron
3.0 Fortescue Metals Group 35

Fortescue Metals Group, million $

30
2.5
25
2.0
20
1.5
15
1.0
10

0.5 5

0 0
Nov-02
Feb-03
May-03
Aug-03
Nov-03
Feb-04
May-04
Aug-04
Nov-04
Feb-05
May-05
Aug-05
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07
May-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08

figure 2.4-2 Relative market cap performance between fortescue Metals and Mount
gibson, november 2002 to june 2008

analysts play an important part in the capital markets that joB of An eQuiTy inveSTMenT AnAlyST
allocate debt and equity to companies. Analysts are an inte- The day-to-day job of a mining investment analyst is split
gral part of the feedback loops that guide management of between researching, modeling, and writing about companies;
publicly listed companies—providing insights and obser- visiting and talking to the companies and industry contacts;
vations about the strategic, operating, and financing prac- and marketing to investors.
tices of each company. Companies that have supportive
analysts typically enjoy a heightened profile among finan- financial Model
cial institutions and also rival corporations. A strong and Having a financial model on the company is a starting point
positive analytical following means companies are often for an analyst but, importantly, cannot provide the answer as
better able to raise equity and debt capital when they need to whether the company is a sound investment proposition.
to and attract partners/bidders in mergers and acquisitions The financial model should have key operational metrics (ton-
work. Although this applies more to smaller and mid-capi- nage, grade, production, and cash costs) with macroeconomic
talization companies, even large companies need to be sure variables such as commodity prices and exchange rates. In
they are seen (at worst) fairly by the analytical community. larger banks, some of the macroeconomic assumptions are
Companies that are loathed by analysts often end up with determined by in-house economists, so the analyst’s view is
low-rated shares and find it more difficult to raise money necessarily colored by that financial institution’s house view.
cheaply. The operational model then creates the traditional outputs of