Following the worst down turn in global resources markets in more than thirty years, both mining and energy equities have rallied hard from their early 2016 lows.
The last three years have been a sharp reminder of the cyclical nature of commodities markets and in this paper we address where we are in the cycle and how investors should be positioned.
Based on the famous children’s fairy tale about The Three Bears, the Goldilocks principle captures the idea of having conditions that are not too ‘hot’, not too ‘cold’ but ‘just right’. From a global resources perspective this neatly describes where we are in the commodities cycle.
In simple terms, we believe conditions are ‘just right’ for shareholders to benefit from improving margins, more disciplined management and ultimately better returns. To illustrate the point, we apply a simple checklist called the Four D’s: Debt, Discipline, Delivery and Distribution.