Bay Street Week Ahead-Base metals a bargain, but how safe?

By Cameron French

TORONTO, Aug 29 (Reuters) - Investors looking for Canadian stock bargains will find cut-rate prices in the base metals space, but analysts caution that a rebound may take a while, as sluggish demand could continue pressure metal prices.

Mining stocks have been a key driver behind the S&P/TSX composite index's .GSPTSE 140 percent rise over the past six years. The index rose 2.4 percent this past week to close at 13,771.25.

But the issues have largely been in the red this year, particularly on the industrial -- or base -- metals side, where the meteoric rise of nickel and zinc to all-time highs in the past two years has finally come back to earth. Copper has fared better, but is still down sharply from its mid-year highs.

"This is the natural reaction after the prices have run up for quite a while. You tend to see a softness period coming in," said Joe Ismail, a technical analyst at Maison Placements Canada.

Top base metals player Teck Cominco (TCKb.TO: Quote, Profile, Research) has been a beacon of strength for the sector, with a nearly flat performance this year due to its strong copper production and to its heavy exposure to metallurgical coal, which has risen sharply.

But recently hot names such as HudBay Minerals (HBM.TO: Quote, Profile, Research), Lundin Mining (LUN.TO: Quote, Profile, Research), and FNX Mining (FNX.TO: Quote, Profile, Research) are all down more than 40 percent in 2008, while First Quantum (FM.TO: Quote, Profile, Research) and Inmet Mining (IMN.TO: Quote, Profile, Research) are down about 20 percent.

AUTUMN BUMP?

With the stock market about to exit the sluggish late summer period, analysts have been trying to gauge which sectors might be ripe for a rebound.