VOLATILITY in the mining sector and the speed with which commodity prices have recovered since 2016 are deterring investors from buying mining shares, said Anglo American CEO, Mark Cutifani.
Responding to questions about the relative underperformance of mining shares this year during a conference held by Goldman Sachs, Cutifani said investors wanted more evidence of capital discipline from management. His comments were contained in a report issued by Goldman Sachs on November 16.
According to Goldman Sachs, mining companies have “… entered the harvest phase after a period of low capex, high prices and low costs translating into significant free cash flow, de-leveraging and the potential for significantly higher returns”. Since January 2016, shares Glencore and Anglo American are up 400% and 500% respectively.
However, there was reluctance among investors to take the shares higher. Goldman Sachs asked if this reluctance was justified as most commodities were in backwardation which means the spot price of a commodity is trading higher than the futures price, implying a shortage of the metal in the spot market.
The view, therefore, among investors is that commodities and mining firms are currently trading at highs and are due a correction.Citing Cutifani’s explanation for the scepticism, Goldman Sachs said investors remained wary of operational progress made by mining firms.
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