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For miners, the best is yet to come

Toronto, (The Globe and Mail) - The bull run in commodities is far from over, according to a prominent market strategist who predicts base metal stocks will take a breather before resuming their ride on a "once-in-a-millennium" boom that will last at least two decades. Bank of Montreal global portfolio strategist Don Coxe is expected to deliver his exceedingly bullish forecast at an industry conference in Florida today where the bulk of the world's major mining executives have gathered.

Mr. Coxe, who correctly predicted the start of the mining boom at the same conference six years ago, believes that metals demand from the roaring economies of China, India and other developing nations will outweigh the effects of a U.S. recession and equities bear market. "It has become clear that this is a once-in-a-millennium commodity boom that will last at least as long as the commodity crash - two decades," Mr. Coxe wrote in a report titled "The Music of the Metal Markets." China's move to buy a 12-per-cent stake in Rio Tinto PLC for $14-billion (U.S.) ahead of rival BHP Billiton Ltd.'s $147.4-billion hostile bid for Rio, could end in the biggest merger in history, Mr. Coxe noted, evidence of how much China is changing the world economy. "Faced with a takeover of the No. 3 iron ore shipper by the No. 2, China authorized a blocking attempt by one of its state-controlled entities," Mr. Coxe said.

Just five years ago, the mining industry's entire market value was $185-billion. Now, it is more than $2-trillion as metal prices for copper, nickel, iron ore and other commodities have exploded and stalwarts including Alcan, Inco and Phelps Dodge have all been snapped up in a frenzy of consolidation. Over the same period, the S&P TSX mining index has skyrocketed nearly 500 per cent. Mr. Coxe believes that Western metals demand will slow because of the collapse of the U.S. housing market and a pending recession. "A temporary slowdown [was] predictable: Each decade has some sort of pause. What will follow this one will be, we believe, an even greater boom - that will last for many, many years," he said. China and India are poised to reclaim their 18th century reign as the key drivers of the world's economy and domestic demand from those countries will keep the boom intact, the BMO strategist predicts. "China's consumption of copper is roughly twice America's, and its demand for iron ore dwarfs U.S. demand.

This is no mere hiccup, but a hinge in history," he said. Mr. Coxe shrugged off concerns that a U.S. recession, which could spread to the European Union and hurt Chinese and Indian exports, would reduce metal demand. "Most of the metal demand in those export-oriented economies comes from domestic sources - construction, infrastructure, capital spending and consumer durables. Exports from China and India don't tend to be of the heavy-metal variety," he said. Not surprisingly, Mr. Coxe is advising heavy exposure to gold. "In the near term, the golds will continue to outperform the stock markets and act as a form of hedge against two kinds of shocks - financial panics and inflation shocks," he said. While he is advising clients to modestly reduce their base metal exposure as a result of near-term cyclical risks, Mr. Coxe recommends long-term investors remain heavily overweight in commodity stocks including base metals. "For miners, the best is yet to come," he said.

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