General discussion (MEI), page-5177

The mining cycle rules of investing

So how do you keep your head while others are losing theirs?

A contrarian approach is often necessary since investors typically chase rising commodity prices and panic when prices bottom out.

Above all, owning quality mining companies with the following attributes can serve investors well:

1. Low-cost producers: Look for mines in the first or second quartile of the cost curve.
2. Long reserve lives: Seek out long-life mines and avoid depleting assets.
3. Low-risk sovereign jurisdictions: Invest in regions where the rule of law protects asset owners.
4. Strong balance sheets: Avoid indebted companies that could become distressed in bear markets.
5. Management: Seek aligned teams with a history of counter-cyclical capital allocation.
6. Commodity prices: Focus on companies near cost curve levels that don't support significant supply growth.

In the end, commodity prices drive the share prices of mining companies, but the low-cost tier-one producers are the ones that deliver cash returns to shareholders.
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