Mining News

Fortunes looking up for the mining sector?

Posted by Alana Wilson on 1/22/2014 10:55:10 AM

By Dr. Kenneth P. Green

In an article at CNBC, Holly Ellyatt reports that several investment houses are turning bullish on mining stocks:

"Looking ahead, the downside risks seem to be diminishing and overall we feel that the big shocks that we've seen over the last two or three years are done and dusted and an environment of greater stability is certainly conducive [to better commodity prices]," Marc Elliott, mining analyst at Investec, told CNBC on Monday.

"Companies have been focusing on their supply-side efficiencies to a great degree - that's a key message from the big players. They're talking about operational efficiencies, reducing the capital budgets and overall returning value to shareholders," he told CNBC's "Worldwide Exchange."

The article explains that several factors support the optimistic outlook of analysts Johann Pretorius and Steven Friedman :

"margins have declined to normalised or even depressed levels for most miners (excluding iron ore producers], presenting limited further earnings downside risk, in our view."

In addition, the weaker exchange rate seen in countries that mine and produce raw materials – such as South Africa and Brazil -- and an industry focus on shareholder value and dividends also "reduced the risk of further value-destruction through poor capital allocation."

Capital expenditure over the last five years, meanwhile "will finally result in volume growth, supporting earnings and free cash flow growth for some miners," they said.

Ellyatt also reports that Citi has shifted their stance on mining investment to the positive side of the ledger for the first time in 3 years.

The mining sector has had a very rough time of it in recent years. The newly optimistic positions on mining stocks must be welcome news to the sector.

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