Investors return to miners after fleeing in 2008

Signs of a recovery in China -- one of the top consumers of raw materials in the world, emerging appetite for risky assets and resilient metal prices have prompted investors to jump on the mining bandwagon this year.

But analysts advise caution and suggest not picking up the shares of small exploration companies, preferring large diversified basic resources groups.

"The recovery in risk appetite has been associated with a belief that the worst of the recession is over," said Andrew Bell, head of research at Rensburg Sheppards.

"But this is still an economically risky environment and not a time to concentrate your portfolio in small exploration stocks. You are still in an environment where diversification, financial strength and access to finance are going to work."

The DJ STOXX European basic resources index has topped the gainers list this year by jumping 44 percent, an impressive performance especially after its 65 percent plunge in 2008, when it was the worst performing sector.

In contrast, the DJ STOXX European utilities index and the telecom index are down 10 percent and 9 percent respectively in 2009, while banks, the best sector this year after mining, are up about 24 percent.

Rio Tinto, Eurasian Natural Resources and Xstrata have almost doubled this year, Lonmin has jumped 63 percent, Antofagasta has climbed 47 percent and BHP Billiton has gained 16 percent.

Part of the rebound in the sector is linked to a recovery in key metals prices. Copper, which fell 54 percent in 2008, has gained 48 percent this year, though it is still 49 percent lower from a peak in mid-2008. Zinc, platinum and nickel are up 26, 23 and 10 percent respectively so far in 2009.

"High above the raging torrent of recession, metals have benefited from a number of bridges across troubled water, enabling them to steal the show," Royal Bank of Scotland said in a recent note.