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Which Global Miner Will Outperform in 2011?

(Mining sector article updated with details on the floods in Australia.)

NEW YORK ( TheStreet) -- Diversified global mining giants experienced a volatile 2010, with their stocks diving in spring and early summer only to rip higher in the last half of the year.

The macro-economic drivers -- demand from China and the other fast-growing emerging economies such as Brazil and India -- pushed the prices of industrial metals higher. But the overall rise came with some sharp swings as Chinese monetary authorities made high-profile moves to stem potential inflation.

Meanwhile, M&A fever has gripped the mining industry in full as companies look to expand their reach and take advantage of projected expansion in industrial-metals demand. Just this month, Rio Tinto (RIO) moved to acquire Australia's Riversdale for A$3.9 billion.

For the year, investors who parked money in global mining stocks did well. The Dow Jones Industrial Average gained about 10% in 2010, the S&P 500 12%. By comparison, shares of Rio Tinto returned 30%, BHP Billiton (BHP) 21%, Vale (VALE - Get Report) 18%.

BHP had its own issues to deal with during 2010 -- namely, its dashed attempt to acquire the fertilizer producer Potash Corp. (POT) -- but rising iron-ore prices helped all three names during the year.

Those miners that deal heavily in copper performed the best in 2010 on the back of record prices for the red metal. Copper giant Freeport McMoRan (FCX - Get Report) saw its stock add 47% for the year. Shares in Canada's Teck Resources, which also has big copper assets, soared 70%.

The copper market has been tight, not only because of global demand but also speculative bets on the London Metals Exchange that have hoarded copper. Some market watchers, including commodities analysts at Goldman Sachs (GS), expect more copper price appreciation next year.

Business fundamentals aren't the only thing affecting miners of late. Many of the world's biggest -- especially the Anglo-Australians Rio Tinto and BHP Billiton -- have had to contend with some of the worst flooding in the history of Australia, as monsoon rains cause catastrophic deluges across the northeastern state of Queensland.

Queensland happens to be home to some of the world's richest coal fields. The floods have forced Rio Tinto, BHP, Vale, British giant Anglo-American and many other companies to declare "force majeure" on sales of coal extracted from their mines in Queensland (mostly for coal used in steelmaking, called coking coal). By enacting a force majeure clause in a sales contract, a company can't be held responsible -- or pay penalties -- on late shipments to customers caused by events outside its control.
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BHP $28.19 1.90%
FCX $11.78 4.30%
RIO $30.98 1.60%
TCK $10.68 3.70%
VALE $4.80 3.80%


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