Mining industry stock mired in summer doldrums

The nation's mining industry is mired in summer doldrums after a long and profitable run, dragged down by volatile prices and fears of a global economic slowdown.

Share of coal, gold and copper mining companies have fallen, some drastically, in the past month despite fairly strong second-quarter earnings. Experts are trying to determine if it's a short-term correction or something worse.

"I think people are starting to read into it that it's more than just the U.S. (economy)," HSBC Global Research analyst Victor Flores said Tuesday.

Barnard Jacobs Mellet analyst Patrick Chidley said it's difficult for some investors to believe a U.S. economic slowdown won't affect the rest of the world. "These things have a tendency to feed on themselves," he said. "That's the problem; there's too much negative sentiment out there."

In the past five years, the coal mining industry has enjoyed a fairly strong market with stock prices more than doubling in some cases and jumping nearly tenfold for Peabody Energy Corp., one of the world's biggest coal producers. Gold and precious metals producers also have fared well on the strength of rising prices.

That changed this summer as inflation afflicted a number of countries and as the U.S. struggles with its own inflation and an extended housing crises.

In the past month, shares of Arch Coal Inc. fell 23.9 percent, Peabody Energy Corp. fell 23.2 percent, Consol Energy Inc. fell 33.1 percent and Massey Energy Co. fell 12.7 percent.

Barrick Gold Corp., the world's largest gold producer shares fell 6.7 percent, Newmont Mining Corp. fell 4.4 percent, Freeport-McMoRan Copper & Gold Inc. fell 4.1 percent, BHP Billiton Ltd. fell 3.3 percent and Rio Tinto PLC fell 3 percent.

Despite the losses, coal producers and industry observers believe the industry has a robust future, noting that coal-fired power plants are in the planning stages around the world and countries such as China and India have a voracious appetite for coal.

Massey Energy said Tuesday it planned to buy back $335 million of its own shares.

Last month, Peabody Coal said strong demand in countries such as China and India has helped fuel a resurgence in coal exports.

China, for example, has idled more than 60 coal plants because coal inventories have shrunk to less than three days' supply, while India will need 78,000 megawatts of new coal-fueled generation by 2012, meaning an additional 265 million tons of coal use in that country, Peabody said.

In the gold mining sector, many analysts believe gold prices will rebound in the fall.

"I think the gold prices are falling because the dollar is making a short-term comeback. Those two are interrelated so well that when the U.S dollar falls, gold rises and vice versus," Argus Research analyst Bill Selesky said.

Peter Schiff, president of Euro Pacific Capital Inc., believes the current downtrend has been caused by investors who may be afraid that the commodities bubble has burst.

"I think that ultimately, we're going to flush out a lot of the speculative money, certainly a lot of the money that came later to the party," he said. "Ultimately, the market is going to go a lot higher without all that dead weight."