So what has changed?
According to Clive Burstow, manager of the Baring Global Mining Fund, the rally in miners has been driven by three primary factors, The China credit pulse, a shift in sentiment towards the Fed and the likely hood of further rate hikes this year and restocking on the back of the improved Chinese data.
Looking further out, Burstow believes the sector is at a fascinating juncture.
“Our thesis was that 2016 would be the trough for the mining sector. We didn’t predict the rapidity of the change, but there was evidence that things were unlikely to get much worse.”
The reason for this, he explained, is that in many commodities supply is finally starting to come out of the market.
“Demand growth tends to stabilise a market, but what really drives growth is supply coming out,” Burstow said, “ we are in a bottoming process now.”
Importantly, in the past five years many mining management teams have got the message the market had been sending them – do not build capacity unless it has a favourable internal rate of return.
He said, after a number of recent management meetings, it is clear that mining companies are building and planning projects on the premise of a lower growth, lower commodity price world.
Of course, there are some metals, like iron ore, where the supply picture remains cloudy, but for many, like copper, the supply outlook is positive. And, that is beginning to show through in prices.
Gold, however, is slightly different.
For Ash, the recent moves in gold stem largely from the change in sentiment toward the Fed.
“The Fed boxed itself into a corner in 2015 and so had to raise interest rates in 2015. But, there has been a lot more uncertainty in 2016 as to what exactly it is going to do,” he said. Adding that in recent years when people lose faith in the efficacy of central bank, many turn to gold.
Caroline Shaw, head of funds at Courtiers said on Thursday that the firm has no plans to go into the gold market at this stage. “Historically we have tended to be short gold and we certainly wouldn’t go into the sector now that it has rallied so strongly. But, we do have some mining firms in the fund.”
According to Shaw, stocks like Rio Tinto and Antofagasta were initially bought for their value characteristics, but they are inherently sound businesses that have rewarded patience.
