Anecdotally, there’s money back in the mining sector. Small companies are doing small raises, and larger companies are doing larger ones.
Talk is that an £80 mln mining IPO is in the pipeline and, if the clamour to present at Mining Capital and Proactive events is anything to go by, after months and years of ducking for cover and dodging bullets, mining company directors are once again willing to put their heads above parapets and really talk up their stories.
They wouldn’t be doing this if they didn’t think they would get a fair hearing, and the reason they think they’ll get a fair hearing is mining equity valuations appear to have hit bottom at the beginning of this year and at last to be on the recovery track.
Behind this trend lies the effect of long years of adjustment. China’s growth rate has slowed, and this initially wrong-footed miners.
When the champagne was flowing in the middle part of the last decade the Supercycle was slated to last for ever – but the more canny promoters would always talk of peaks and troughs within that Supercycle.
In the last few years though, the trough that did subsequently develop has turned out to be a lot deeper and harder to climb out of than anyone anticipated.
But the fact still remains that almost all commodities are still, even now, priced higher than they were before the China growth story really began to accelerate.
So expect renewed, but more cautious versions of the old Supercycle tale to start coming out of the woodwork again over the coming months and years.
This time though, the sudden burst of euphoria that characterised 2005 and 2006 is likely to be slower in coming and more measured.
That’s partly because last time round one quirky characteristic of the boom was that because it came after such a long period of inactivity and recession in mining most of the major players were either over 50 years old or young and inexperienced newcomers.
But it’s also because this time round there’s a certain added visibility to the Chinese economy. Ten or 15 years ago, most investors and mining company directors would have struggled to name even one or two major Chinese companies.
Now, the list of familiar names is legion, and if the data on them is often suspect at least there is data and you can form your own view as to its trustworthiness or otherwise.
Thus Yuen Low at Shore Capital writes this week that he is in favour of shorting base and industrial metals and associated large cap miners like Glencore (LON:GLEN), Rio Tinto (LON:RIO) and Antofagasta (LON:ANTO).
Antofagasta itself said this week that it doesn’t expect copper prices to “stabilise” until late 2017 or early 2018. But that’s not the reason for Low’s caution.
Rather, he notes that three Chinese state-owned enterprises have reneged on bond obligations this year and that the next to default could well be Xining Special Steel. (Hands up who’d heard of Xining ten years ago?)
Chinese state-owned entities, argues Low, are thus not too big to fail – point one.
Point two is that IMF data shows that US$1.3tn of Chinese corporate debt is now at risk of default, or approximately 14% of the overall total debt held by Chinese companies.
If a major portion of that debt falls over the risks to the global economy could be very serious.
Even so, the availability of this data for market analysis is significant in itself. It means that when other bullish Chinese developments, like those highlighted by SP Angel last week, are brought to bear, a more balanced picture can be painted.
SP Angel noted twice in separate morning notes that the Chinese Ministry of Commerce had indicated that construction of the next phase of city infrastructure projects could be about to get underway.
“The implication,” went the SP Angel commentary, “is that China will have enormous demand for steel, copper and other metals. Maybe this is why Chinese traders have been stocking up on copper and other metals.”
If true, it all bodes well for miners and goes some way towards explaining why the prices of some commodities have risen this year, while others have at least stopped their precipitous declines.
All to the good for junior miners hoping to ride a wave if not this month then at least later this year. But before anyone gets too carried away, remember that US$1.3tn of debt. China is beginning to integrate properly now, and it won’t all be one-way traffic.