Skip to main content
Canada’s most-awarded newsroom for a reason
Enjoy unlimited digital access
$1.99
per week
for 24 weeks
Canada’s most-awarded newsroom for a reason
$1.99
per week
for 24 weeks
// //

Surging prices for commodities, stronger balance sheets and rising inflation have lured back to mining stocks generalist investors that for years shunned the sector, data show.

Shares in diversified mining companies Rio Tinto , BHP , Anglo American and Glencore have doubled in the past year, as policy support measures in advanced economies in response to the COVID-19 pandemic stoked inflation.

Commodities serve as a hedge against inflation, meaning their prices are expected to stay strong, and at the same time the transition to a low-carbon economy and channeling of stimulus funds into infrastructure are generating demand for raw materials.

Story continues below advertisement

The size of natural resources mutual and exchange-traded funds tracked by Refinitiv Lipper data exceeded US$70-billion by the end of April for the first time since September, 2018, at US$72.4-billion.

Many generalist investors – or money managers whose focus is not solely on mining companies – fled the sector when a commodity boom crashed in 2015 as China’s appetite for raw materials slowed down.

“The inflation fears and metals price action has brought investors back to mining stocks,” said London & Capital head of equities Roger Jones, whose fund holds mining stocks.

A Bank of America survey of fund managers published in May found that a net 21 per cent of European investors participating in it were overweight metals and mining versus a net 56 per cent that said they were underweight a year ago.

The survey found fund managers were underweight defensive sectors such as utilities and pharma.

This is not only visible in Europe, as several hedge funds have piled into Canada-listed Teck Resources Ltd., for example, U.S. regulatory filings show.

AVOIDING BOOM AND BUST

Miners have learnt a hard lesson since the last boom, when they overpaid by billions to buy assets, sometimes in complex jurisdictions or difficult geologies.

Story continues below advertisement

By maintaining discipline on costs, spending and acquisitions, they cut debt and gave shareholders dividends that have become loftier as commodity prices rose.

Prices for copper, which is expected to be one of the biggest beneficiaries of the lower-carbon economy, hit a record this month, while battery minerals nickel, lithium and cobalt have also jumped.

Sell-side analysts have hailed the latest rally as the beginning of a supercycle, but some fund managers caution against too much enthusiasm, as supply disruptions caused by the COVID-19 restrictions ease, potentially curbing prices.

“Supply chains are still not working as smoothly because of COVID lockdowns, so we have to wait until there is a normalization to get a better idea of what is really driving commodity prices,” said Ben Ritchie, head of European equities at Aberdeen Standard Investments.

Fund managers also said China was not consuming as much metal as it was during a 2000-08 supercycle, and mining stocks are trading on low multiples compared to tech, for example, which suggests broader skepticism that prices can be sustained.

Another concern for investors has been the level of risk associated with mining that has led to environmental disasters and legal action.

Story continues below advertisement

As ESG (environmental, social and governance) criteria have shot to prominence, miners have drawn up sustainability reports and ethical and green targets that may reassure some investors.

“ESG has been a challenge for miners to adapt to, but it is arguably the best thing that has happened to the mining sector,” said Janus Henderson fund manager Tal Lomnitzer, whose funds hold Anglo American and copper miner Freeport-McMoRan.

“Decarbonisation should bring in those investors who would otherwise avoid the sector.”

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow topics related to this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Tickers mentioned in this story
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies