The Mining Sector Shunned By Investors Due To Lack Of Trust - Thomson Reuters
(Kitco News) - The mining sector is still being shunned by investors as there is a general lack of trust in the decision-making process, Reuters reported citing its data.
Investors are having trouble forgetting a number “of multi-billion dollar takeovers and expensive development projects” that left them with no profit, Thomson Reuters said in a report.
Even several years after the raw materials crash, investors are still worried about putting their money on the line.
Even though the mining sector boosted the FTSE higher in 2016, the levels were very weak in comparison to the strength seen in 2011, Reuters said.
“Thomson Reuters data shows mining funds shrank slightly last year after a surge in 2016. Returns of 16 U.K.-domiciled natural resources funds fell 2 percent last year after a 74 percent increase in 2016. Assets under management fell to 3.78 billion pounds ($5.3 billion) last year from 3.81 billion in 2016,” the media report said.
Investec Asset Management portfolio manager Hanré Rossouw said that a drop in interest was due to a general lack of trust in the management’s decision-making process.
“It seems that investment in mining companies has gone from sector-specific funds to generalist and more diversified funds. After the good bounce in 2016 people may have decided to take their money out of sector specific funds,” Rossouw told Reuters.
There are ongoing concerns that the management “will just do the same as they've done in the previous supercycle in not returning cash to shareholders and making poor capital allocation decisions.”
The mining sector is directly connected to commodity prices and right now there are concerns that another upcoming boom might end up busting.
Rob McEwen: Only A Matter Of Time Before 'A Tidal Wave Of Money' Flows Into Miners, #Gold | @McEwenMining | #Decrypting2018 | by @neils_C | https://t.co/DMkNeQxTD0 pic.twitter.com/lJ35vagi5Q
— Kitco NEWS (@KitcoNewsNOW) January 12, 2018Miners are currently stuck in the “unloved camp,” said Jonathan Miller, head of U.K. manager research at Morningstar.
“The sector has been in outflow mode for six out of the last seven years, with the only positive in this period being 1.1 billion euros ($1.4 billion) of net inflows in 2016,” Miller said.
But, hope is not lost as the mining sector is turning around and companies are starting to pay back their shareholders in a very noticeable way.
For example, Rio Tinto revealed record dividends last week and BHP Billiton announced a record dividend last August. Also, mining firms, such as Anglo American and Glencore, have reinstated their dividends.
“We are delivering through the cycle,” said Rio Tinto's chief financial officer Chris Lynch. “I don't think you're going to find many people in my position who are going to say we are overvalued.”
By Anna GolubovaFor Kitco News
Follow annagolubova
agolubova@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.