At the height of the mining boom, lorry drivers working in Western Australia’s Pilbara iron ore belt would have expected to take home something in the region of £100,000 a year in basic salary as China’s demand for commodities countinued unabated.

Nowadays, mining companies Down Under have even cut steak sauce off the menu and cancelled the free staff barbecues to cut costs. The days of mineworkers earning salaries and bonuses comparable to a fully qualified doctor are long gone.

Capital expenditure among the world’s top 10 mining companies is expected to fall to around $64bn (£42bn) this year, down from almost $80.1bn two years ago when the industry really started to wake up to the scale of the slowdown in commodities demand, especially in Asia.

The biggest mining companies, such as BHP Billiton, Rio Tinto, Anglo American and Vale, are all streamlining aggressively, while junior miners are racing to bring projects into production, or offload assets to generate much needed cash to service their debt or just weather the storm.

Five years ago, mining companies across the globe loaded up on debt to dramatically crank up production of base metals and bulk commodities to feed China’s insatiable appetite for raw materials. But that strategy has unravelled in the recent downturn, with the cost of insuring debt against default across the industry starting to rise and ratings agencies sharpening their pens for downgrades.

Nobody in the mining industry saw the downturn coming until it was almost too late to react. The Bloomberg Commodity Index of 22 raw materials hit a 12-year low in January, led by steep declines in major commodities such as iron ore, coal and copper.

However, tentative signs are emerging that could signal that the mining industry and commodities sector are reaching the bottom of the curve, where investors could soon return in search of opportunities.

“The aggressive sell-off in commodities during the second half saw the mining sector deliver its fourth consecutive year of negative returns,” wrote Olivia Markham, from the BlackRock natural resources team, in a recent note to investors.

“We are now in uncharted territory, with the mid-to-late ’90s seeing three years of consecutive negative returns, before the next 'up-cycle’ began in the early 2000s. As we enter 2015, a number of data points suggest that we are reaching an inflection point.”

David Fuller's view

Here is a PDF of The Telegraph's article.

Mining has always been the most cyclical of industries.  Nevertheless, this cycle has been longer for two main reasons: 1) The 2008 credit crisis has lengthened the global economic slowdown; 2) Accelerating technological innovation has made mining much more efficient. 

Consequently, the closest parallel for mining is with the oil and natural gas extraction industries.  However, they will learn more from mining because its bear market started earlier.  Fifteen to twenty years ago, and earlier still, the main fear was that the world was running out of these resources.  What we have learned is that technology can locate additional resources much more easily and enable us to extract them far more efficiently.  There is also a third factor in addition to the two mentioned in the paragraph above: 3) Technology has created new materials which will reduce demand for industrial resources.

Demand for crude oil and eventually natural gas will decline in decades ahead, as the efficiency with which solar energy is produced continues to increase.  Similarly, demand for industrial metals will decline as they are replaced by graphene, ceramics and plastics. 

Nevertheless, this is a lengthy process and mining sectors have always rallied strongly as the global economy moves towards another period of synchronised GDP growth.  This does not appear to be imminent but it should occur within the next two to four years.  Meanwhile, if leading mining shares such as the four mentioned above are able to maintain their dividends, and perhaps also acquire some additional strategic resources from less well capitalised miners, they are very likely to provide good returns.  These are: Rio Tinto (est p/e 11.44 & yield 5.15%), BHP Billiton (est p/e 14.52 & yield 5.66%) and Anglo American (est p/e 12.22 & yield 5.29%), all of which are quoted in Sterling.  Vale (est p/e 14.97 & yield 6.23% is quoted in US Dollars.  My clear preference is for Rio Tinto and BHP Billiton, which have been in my personal long-term portfolio for a number of years.  Judging from the chart patterns Anglo American and especially Vale are considerably more speculative.