Mining Stocks Price in 50% Drop in Commodities, Bernstein Says

By Brett Foley

Sept. 18 (Bloomberg) -- Mining stocks are discounting as much as a 50 percent decline in commodity prices as the market factors in ``a significant cyclical downturn,'' Sanford C. Bernstein & Co. said.

Commodity prices are lower than those required to justify new investment in mining projects, Bernstein's London-based analyst Andrew Keen wrote today in a report. ``Macro events'' are driving stocks down but ``a downturn of this magnitude is yet to be realized in commodity markets,'' Keen wrote.

``We acknowledge that the possibility of further weakness in commodity prices is possible, but we see the equity sell-off as more than pricing this in at present,'' Keen said in a telephone interview. ``We don't think all growth from emerging markets is going to halt and we don't think that earnings momentum has peaked for the diversified miners.''

Mining companies such as Xstrata Plc, Anglo American Plc and Rio Tinto Group have an average ``upside'' of 33 percent, the report said.

The UBS Bloomberg CMCI index of 26 raw materials has fallen 9.8 percent this month, leaving it down 24 percent from its July all-time high.

To contact the reporter on this story: Brett Foley in London at bfoley8@bloomberg.net