SPECIAL REPORT: Are mining stocks overvalued?

Market optimistically expects spot prices and capital restraint to continue to underpin high returns. We have been bearish on the resources space for a few years, and to date, our more pessimistic view has not played out. The Australian mining companies have performed very well in recent times, against our expectations. From lows in January 2016, the S&P/ASX 200 resources index has roughly doubled, as have the share prices of BHP and Rio Tinto. After plummeting 75% within two years, Fortescue's shares have subsequently tripled from 2016 lows. Based on our work on the sensitivity of our fair value estimates to commodity price changes, we estimate the market is factoring ...

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