Mining Cash Train's Back in Town

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"Confidence has cautiously returned—for now, at least."

After commodity prices collapsed across 2008 to multiyear lows by the year-end, steady recovery characterized 2009 and continued before corrections set in earlier this year. Prices have started bumping up again in recent weeks, with copper leading the way. For mining companies, the net result that shows up during the current earnings-reporting season indicates a substantial return to profits and cash flows.

Confidence has cautiously returned—for now, at least. A number of miners have reinstated dividends, and others have raised dividends. Capital expenditure programs continue to return to longer term trendlines, also benefiting from substantial costs that were taken out of circulation during and after the shocks of 2008.

Transnational group Rio Tinto, reporting today, posted an astonishing US$5.4B in free cash flow (operating cash flow, less capital expenditures) for the first half of this year, compared to just US$100M for the first half of 2009. The group's net debt (including cash) has fallen from global mining's record of US$45.2B at the end of 2007 to a far more palatable US$12.2B on June 30 this year.

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