Few sectors are beset by such irrationality and extreme sentiment as industrial mining. A year ago, supply for many base metals was tightening, and demand well supported by broad economic growth. Twelve months on, and supply remains tight, but the reality of underlying demand growth has been entirely overwhelmed by the impact of the US-China trade war, and the implications for the planet’s largest consumer of raw materials.
Seen through the lens of the short-term futures curve, the future is either golden, or terrible. Look to the share prices of the largest stocks in this patch – such as Rio Tinto (RIO) and Anglo American (AAL) – and you will see highly cash-generative companies trading on an enterprise value to cash profits multiple of less than five (see chart, below). Move further down the food chain to the equally high-margin copper group Kaz Minerals (KAZ) or Ukrainian iron ore pellet producer Ferrexpo (FXPO) – and you will see stocks in bargain territory, and multiples that suggest imminent bankruptcy.