30th January 2017
The IAMFUNDS.CH team invites you to take a closer look at the mining sector and the IAM Gold & Metals Fund. 2016 was a very strong year for the mining sector, with the Bloomberg World Mining Index gaining +39.6% over the year. This very positive year followed four very difficult years for the sector, which saw strong falls in prices due to less demand, as well as due to huge overcapacities, as the mining companies had maximised their production volumes.
There are two major factors for the positive results in 2016: First the improved economic environment, with demand increasing again. Second factor, also significant going forward, the mining companies have done their homework during their difficult years. They have stopped maximising their volumes, have reviewed their business to concentrate on their most profitable activities and hence focalise on their free cash flow.
With these excellent performances in 2016, is there still room for more in 2017? We at IAM believe there is, for the following reasons:
First there is still potential for certain metals, mainly basic and industrial ones. Examples here are copper, which should benefit from upcoming infrastructure projects in the US, and zinc. Prospects for aluminium are currently also looking promising. Its production requires high electricity consumption. In China, where for many years aluminium was produced almost at loss, capacities have recently been cut in order to reallocate the electricity to more profitable sectors as well as reduce pollution. This reduction in offer has led to significant increases in aluminium prices in the last weeks.
Second, as mentioned, the mining companies have restructured over the last years and are today in a much stronger position. They have significantly reduced their level of debt and they are controlling their production costs. These efforts should generate record amounts of free cash flow. As companies are currently reluctant to invest in in large development projects this should translate in substantially increased dividends.
The IAM Gold & Metal Funds invests in mining companies and hence takes advantage of the positive development of the mining sector. Curious to find out more? Why not take a closer look at the fund?