The world’s biggest mining stocks, which slumped 26% last year, rose to their highest in more than a year in July after metals prices rebounded.
The 101-member Bloomberg World Mining Index advanced 5.4% in the month, reaching the highest monthly close in 16 months as a stronger-than-expected economy in China, the biggest buyer of raw materials, reinvigorated investor appetite for resource stocks.
During July zinc traded at its highest in three years and aluminum completed its longest streak of monthly price gains for 10 years. BHP Billiton, the largest mining company, advanced to the highest in more than a year in London.
Three years of cutbacks marked by a cull of CEOs in the wake of investor criticism of overspending and more than $60bn of writedowns may be ending, said Chris LaFemina, a mining analyst at Jefferies LLC.
Shareholders’ attitudes to investing in new mines are starting to turn, Rio Tinto Group CEO Sam Walsh said last week.
“The sentiment has turned regarding this sector, and you have to remember we’ve been in a very, very difficult period,” James Sutton, a portfolio manager at JPMorgan Asset Management’s $1.9bn Natural Resources Fund in London, said. “We’ve had three calendar years of negative returns for the mining sector so it was inevitable that at some point that sentiment would turn.”
After demanding mining companies bolster returns, curtail spending and strip out costs, investors are starting to entertain discussions on future growth plans, Rio’s Mr Walsh told reporters in Perth last week.
“A year ago the market was talking about returns, returns, returns and stop investing,” said Mr Walsh, who last year embarked on a $3bn cost-cutting mission after being named CEO. “Now people are taking a long-term view and recognising the fact there has to be a balance.”
Rio jumped 9.1% in July, the best month for a year. The London-based company will report first-half results on August 7. Glencore, the world’s largest publicly traded commodities supplier, advanced 11% for its best month since January 2013.
“The story is just starting to reach investors,” Mr LaFemina said. “People are re-engaging with this space. The age of austerity will come to an end. The investors who are getting involved here are ones who see that we’ve potentially hit a floor,” he said. “Valuations are maybe too cheap.”
China’s stocks jumped in July, propelling benchmark indices to their largest monthly gain since December 2012 amid optimism government stimulus will boost economic growth. Signs of monetary easing and accelerated state spending and gains in manufacturing helped support investor confidence.
China Molybdenum, the second-biggest producer of steel-making material in the country, was the best performer on the Bloomberg World Mining Index last month, rising 29%. Chinese companies were nine of the top 10 performers on the index. African Barrick Gold posted the fourth-highest gain of 27%.
“There is increased optimism at the moment,” Alexander Keepin, global co-head of mining at law firm Berwin Leighton Paisner LLP in London, said in an interview. “People are properly engaging in transactions to hit, starting in September. A strong mining index as these companies are considering raising capital can only be a positive for them.”
The US economy expanded at an annualised 4% rate in the second quarter, exceeding economists’ estimates, data showed this week.
Zinc climbed 6.5% in July, its fourth monthly gain, amid speculation demand will exceed supply. Aluminum, which has advanced for six straight months, entered a bull market last week amid speculation about a shortage.