Title: Report on Miners
BHP, Australia Miners May Rebound as `Less Risky' Bet on China

April 11 (Bloomberg) -- Australian shares of mining companies such as BHP Billiton and Rio Tinto Group, dragged lower last month along with emerging markets, may rebound as investors seek relatively safe bets on China's economic growth.

``Miners in Australia are absolutely the place you look for a less risky exposure to the China story,'' said Martin Schulz, who manages $800 million as director of international equities at National City Investment Management in Cleveland and raised his stake in BHP this year.

Shares of BHP fell 6.6 percent in March and Rio's dropped 4.5 percent on concern the U.S. Federal Reserve will accelerate interest-rate increases, damping demand in the world's biggest economy and slowing growth worldwide. Morgan Stanley Capital International's Emerging Markets Index, a global benchmark, dropped 6.8 percent.

China's economy grew 9.4 percent last year, the fastest pace in eight years, causing a surge in demand for commodities such as energy and metals. Last week, the Asian Development Bank forecast 8.5 percent growth for 2005. Production at the nation's factories rose to an 11-month high in March, a CLSA Asia-Pacific Markets survey showed.

Investors in mining companies were among the biggest beneficiaries of the growth, judging by the performance of the 10 industry groups in the MSCI Asia-Pacific Index. The materials index rose 14 percent in the past 12 months, more than any other except energy, the smallest by market value.

China Drops

``Mining companies give you the possibility of benefiting from China's growth with less risk than investing directly,'' said Rene Clerix, who oversees $2.6 billion at Dexia Asset Management in Brussels.

The performance of China-related stocks in the past 12 months illustrates the risks. The Hang Seng China Enterprises Index, tracking the shares of 38 state-owned companies listed in Hong Kong, fell 2.9 percent. China's domestic Shanghai Composite Index slumped 31 percent to its lowest in almost six years.

Shares of BHP, the world's biggest mining company, have risen 42 percent in the past year. Australian shares of Rio, the third-largest, have gained 28 percent. BHP's first-half profit more than doubled to a record $2.8 billion for the six months ended Dec 31. Rio's 2004 net income surged 86 percent to $2.81 billion, also a record.

BHP, based in Melbourne, and Rio, a London-based company that also has a headquarters in Melbourne, account for half of the value of Australia's S&P/ASX 200 Materials Index. The 38 members of the industry group produced about a third of the $108.9 billion of goods Australia exported last year.

`Less Certain'

Australia's copper shipments to China climbed 30 percent last year to A$1.6 billion. The nation's nickel sales to China surged 88 percent, coal exports jumped 72 percent and iron-ore shipments rose 41 percent.

While emerging markets such as Indonesia or Brazil have also benefited from Chinese demand, Australia's mining stocks offer the best chance to profit with less risk as U.S. interest rates rise, AMP Capital Investors' Shane Oliver said.

``Higher interest rates in the U.S. plus higher raw- materials costs equal a much less certain global investing environment,'' said Oliver, who helps manage about $54 billion as AMP's head of investment strategy in Sydney.

Australian miners benefit from being closer to China than competing countries such as Brazil or Canada, said Tim Barker, who helps manage the equivalent of $30 billion at BT Financial Group in Sydney.

Shipping a ton of bulk commodities, such as coal or iron ore, to China from Western Australia costs $15.39, 60 percent less than from Brazil, according to London's Baltic Exchange.

Not So Cheap

Mine engineers and managers ``understand the business of dealing with Asia,'' said Barker. He holds shares of BHP, Rio and WMC Resources Ltd., the world's fifth-largest producer of nickel and a takeover target for BHP.

Investors in Australian miners may also gain from takeover speculation after BHP last month topped a bid from Xstrata Plc for WMC Resources.

Coal miners Macarthur Coal Ltd., Excel Coal Ltd. and Felix Resources Ltd. and iron ore miners Mt. Gibson Iron Ltd. and Azrec Resources Ltd. may be targets, UBS Investment Bank analysts Glyn Lawcock and Fleur Grose wrote in a Jan. 10 report.

The earlier rally among mining companies' shares has gone too far, said Marc Faber, who oversees about $300 million as managing director of Marc Faber Ltd. in Hong Kong and has invested in Asia since 1973, said

``Commodities prices, excluding oil, have run their course and these stocks are no longer so cheap,'' said Faber, ``I have been selling down mining stocks.''

`Strong Story'

Jim Rogers, who co-founded the Quantum hedge fund with George Soros, took the opposite view in an interview on April 7.

``The bull market in commodities will last until 2014 to 2022,'' he said. ``Australia will do better because of its natural resources. That's a place I have investments.''

Don Hamson, head of equities at State Street Global Advisors in Sydney, backed the idea that mining stocks will recover from last month's declines. He helps manage $30 billion at the firm, whose holdings include shares of BHP and BlueScope Steel Ltd., Australia's biggest steelmaker.

``I can't see anything that's fundamentally changed except share prices of Australian miners just got cheaper,'' Hamson said. ``The China story is strong and is still going to drive miners' earnings for a while yet.''

although i think that it should read Aztec Resources (also on AIM).