Investor sentiment toward the mining industry is at low ebb, with equities in the basic resources sector dropping to about 2.9 percent of Europe’s STOXX 600 Index from about 5.2 percent three years ago.
Meanwhile, global mining companies continue to say and do all the right things: cutting capital expenditures, focusing on cost reductions, paying down debt and avoiding expensive mergers and acquisitions.
For example, Rio Tinto (LSE: RIO, NYSE: RIO, ASX: RIO) plans to slash its costs by US$3 billion, while Glencore (LSE: GLEN, OTC: GLCNF) aims to reduce its expenses by US$1.4 billion. Lifelong Income Portfolio holding BHP Billiton (ASX: BHP, NYSE: BHP) has likewise committed to scaling back its capital expenditures dramatically.
In total, the world’s largest diversified mining companies have reduced their capital expenditures by about US$20 billion, leading the way to curtailing some of the excess that occurred when the industry pursued production growth for growth’s sake.
Despite this progress, the market has yet to appreciate the relative value that the best mining stocks offer at current prices.