Empirical correlation of mineral commodity prices with exchange-traded mining stock prices.

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dc.citation.epage468en_ZA
dc.citation.issue7en_ZA
dc.citation.spage459en_ZA
dc.contributor.authorNangolo, C.
dc.contributor.authorMusingwini, C.
dc.date.accessioned2018-08-24T13:50:47Z
dc.date.available2018-08-24T13:50:47Z
dc.date.issued2011-07
dc.description.abstractMineral commodity prices comprise one of the key criteria in the selection of mining stocks. We contend that of the three principal elements of mineral commodity prices, spot price, forward price and long-term price, one has a greater impact on the share valuation processes used by investors. This research paper examines the extent to which each of these elements influences the valuation process. The intention is to provide investors in mining stocks with a greater understanding of how fluctuations of commodity prices over time affect the prices of the mining stocks they hold, or intend to sell or buy. Three mineral commodities, gold, silver, and copper, were used as case studies, since market data on these commodities is readily available in the public domain. Nine market indices covering all three mineral commodities were selected. These are based on clearly defined criteria with the intention of eliminating ambiguity and to test for correlation with the three sets of mineral commodity prices. Nine mining companies, which were not the primary drivers of the relevant indices employed in the study, were used to validate the results obtained from the indices in order to avoid duplication of the same correlation during cross-checking. Each commodity price was adjusted for operating costs. For each market index, an average operating cost was calculated from the companies comprising its basket, while each company's annual operating costs were used for the stocks of the individual companies examined. The data was collected for the period January 2004 to October 2010. This period was further split up into three sub-periods to account for the Global Financial Crisis (GFC) period that started in mid-2008. We conclude that mining stock prices are correlated with mineral commodity prices, but with spot and forward prices exhibiting stronger correlations than long-term price. This finding should be useful for evaluation purposes. Where cash flow methodologies such as discounted cash flow or earnings per share are used to value ordinary shares and commodity prices are required to estimate future cash flows, the findings suggest that spot prices should be used as opposed to long-term prices. The work reported in this paper is part of a current MSc research study at the University of the Witwatersrand.en_ZA
dc.description.librarianMvdH2018en_ZA
dc.identifier.citationNangolo, C. and Musingwini, C. 2011. Empirical correlation of mineral commodity prices with exchange-traded mining stock prices. Journal of the Southern African Institute of Mining and Metallurgy 111(7), pp. 459-468.en_ZA
dc.identifier.issn2225-6253
dc.identifier.urihttps://hdl.handle.net/10539/25485
dc.journal.titleJournal of the Southern African Institute of Mining and Metallurgy.en_ZA
dc.journal.volume111en_ZA
dc.language.isoenen_ZA
dc.orcid.id0000-0002-5150-4749en_ZA
dc.publisherThe Southern African Institute of Mining and Metallurgy.en_ZA
dc.rights© 2011. The Southern African Institute of Mining and Metallurgy. This Journal provides immediate open access to its content on the principle that making research freely available to the public supports a greater global exchange of knowledge.en_ZA
dc.subjectMineral commodityen_ZA
dc.subjectMining stocken_ZA
dc.subjectMarket index.en_ZA
dc.subjectMarket capitalizationen_ZA
dc.subjectLong-term priceen_ZA
dc.subjectGlobal financial crisisen_ZA
dc.subjectForward priceen_ZA
dc.subjectEarningsen_ZA
dc.subjectInvestmentsen_ZA
dc.titleEmpirical correlation of mineral commodity prices with exchange-traded mining stock prices.en_ZA
dc.typeArticleen_ZA
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