“The diversified majors have responded admirably to the pressures they faced last year,” Investec analysts including Jeremy Wrathall, head of global natural resources, said in a note. “Mining companies took the requisite actions.”

Adkerson has also been swabbing the decks. Freeport has tapped shareholders for cash, and sold assets. It expects to get $5.2 billion from already announced sales in the fourth quarter, and this month reported its first quarterly profit in two years. Freeport shares are up more than 60 percent in 2016.

Glencore, the top commodity trader, sold shares, suspended dividends, reined in spending and offloaded unwanted bits of the business. It has pledged to cut debt to as low as $16.5 billion by the end of 2016 from about $30 billion last year. Anglo, after also halting its dividend, is radically shrinking with plans to sell more than half its mines. It’s set to meet a $10 billion debt target in 2016.

Glencore’s shares more than doubled this year and Anglo’s more than tripled as investors weigh the prospects for a return of dividend payments. The FTSE 350 Mining Index gained 0.7 percent on Monday to near a 16-month high.

Yet such gains are down to luck as much as management. China’s decision to reignite its growth with stimulus spending and U.S. reticence to damp its economy by raising interest rates have boosted asset prices. The cost of coking coal has more than tripled in 2016 and thermal coal gained about 90 percent.

Investors will be wary of any return to the overspending of past years.

“There’s a better chance than there has been in the past that management teams have got it,” said Clive Burstow, who helps manage about $475 million at Baring Asset Management Ltd. in London. “They seem to understand that they cannot just go back to the bad old profligate ways. Their destiny is in their hands.”

David Fuller's view

Mining is the most cyclical of industries and veteran subscribers have seen the cycle repeated many times since the early 1970s.  1) Metal prices trade below the cost of production, causing a reduction in output and a marginal increase in demand.  2) The global economy finally improves but mining companies are very cautious because they over-expanded in the last boom.  3) Metals rebound from their lows and mining companies belatedly jump on the bandwagon by increasing production, although they lack the confidence, capital and manpower to do this rapidly.  4) Metal prices soar as demand increases more rapidly than supply; mining companies increase staff and borrow for expansion and also takeovers.  5) High metal prices weaken demand; central banks lift interest rates to slow GDP growth and curb inflation.  6) Metal prices fall but over-leveraged mining companies are slow to cut production, causing their shares to slump.  7) Corporate losses force miners to reduce manpower, halt or sell greenfield sites, and close less efficient mining projects. 

Where are we in this cycle? 

The first stage of recovery in metal prices and mining shares was evident at the beginning of 2016.  We are currently entering stage 2 above.  Mining shares are leading metal prices higher, for the most part. 

Here is a technical review of the four mining shares cited in the article above.  Glencore is temporarily overextended following a persistent rise which has pulled away from the 200-day (40-week) MA.  It is also testing initial resistance from the 2013 and early 2015 lows.  Watch for a downward dynamic relative to the last few weeks on the upside as the start of a reaction and consolidation before this share carries higher.  BHP Billiton is also temporarily overextended near some potential resistance and currently consolidating gains.  This pause and ranging consolidation may continue before the uptrend is extended.  Rio Tinto and Anglo American have similar patterns and outlooks.   

Nevertheless, while susceptible to pauses and some reaction in the near term, a normal recovery would carry these shares considerably higher over the next year or two.  In the event that we do not see a normal recovery, evidence to the contrary would require sustained breaks beneath the MAs, which also roll over. 

Please note mention of Clive Burstow in the last paragraph of the Bloomberg article posted above.  He will be our guest speaker at The Markets Now on Monday 28^th November.