RealMoney

Global commodities mining companies have seen their stocks propelled over the past several months, with BHP Billiton plc (BBL) Rio Tinto plc (RIO) and South32 Ltd. (SOUHY) and Freeport McMoran Inc. (FCX) leading the way, but have investors missed the boat here?

As of Wednesday's close, the companies were up 24%, 24%, 27%, and 21%, respectively, from lows hit in late June. Those numbers are down a bit since last week as all three of these companies have receded from year-to-date highs hit earlier this month due to a rally in all primary commodities from 2016 lows. Until this week, Chinese demand has proven to hold up better than expected, boosting revenues for these companies.

"Despite notably different supply-side dynamics this year -- capacity cuts and winter closures in China for aluminum and increasing supply from Philippines and Indonesia for nickel -- prices of all base metals are now about 25% higher compared to the end of last year," Goldman, Sachs & Co. analysts wrote in a Nov. 14 research note.

Chinese demand activity data released this week were soft in general, however, according to Goldman. The firm suspects the country's heightened anti-pollution campaign, restrictions during the Party Congress and the timing of the Mid-Autumn Festival this year are playing a role.

Does the dip in mining stocks represent a sign of more bad news to come or a potential buying opportunity?

Well, based on recent reports, it appears the commodity cycle is turning in China, one of the most significant drivers for mining revenues. And Goldman's clients are particularly concerned over the country's slowing property market, which could drive down the prices of steel and other metals.

That's not good news for BHP, RIO, SOUHY or FCX, all of which have been drastically cutting costs and selling assets to improve the balance sheet, and subsequently, their standing with investors. Luckily, a cessation in greenfield and brownfield development has filtered into a slump in demand for equipment and service suppliers like Caterpillar Inc. (CAT) . Lower equipment prices have been good for the bottom line of global miners.

If the trend of lower service costs continue, and miners like BHP and RIO can deliver on a promise to renew focus on shareholder value, these stocks could once again jump between late 2017 and early 2018.

BHP is currently working on a sale of its U.S. unconventional oil and gas business, which is expected to be viewed favorably by investors. To be sure, its Permian Basin assets alone are thought to be worth between $2 billion and $3 billion, which could be used to buy back stock and support improved dividends.

Rio Tinto, meanwhile, has already promised to return $2 billion or more from its Australian coal mine sales to shareholders and could go beyond that.

"RIO has embarked upon a significant asset sale process over the past four years which has seen [$7.9 billion] of asset sales, with the proceeds used to improve the balance sheet and start capital management," Goldman wrote in a Nov. 2 note. "We believe that any further proceeds from asset sales will continue to top up RIO's capital return program."

Goldman is convinced South32 is on the right track as well. In a research note issued late last month, the firm argued that recent negative sentiment surrounding the company is overblown.

Negative investment drivers have included concerns over short mine life, operational issues, and South African political risks. For the latter, Goldman feels the risk is more sentiment than financially driven, and will likely have net production value impact of less than 2%. Meanwhile, the firm contends that mine life and operation issues are overplayed as South32's mine life of 10 years is in line with base metal peers and its operational problems at its Cannington and Illawarra assets are already priced in the shares.

"We see downside risk from here as limited," Goldman wrote. "We continue to like S32's attractive multiples, strong cash flow, and capital return profile, and maintain our Buy rating."

But miners are refraining from ramping capital expenditures programs, and this may continue until commodity uncertainty is reduced, according to Goldman.

Without more spending, these companies can't boost profits, a long-term negative for the stocks.

"For both copper and zinc, market prices are now above long-term marginal costs," Goldman wrote. "However, we have not seen significant increases in mining capex. This may seem puzzling but is actually consistent with the economic theory of investment under uncertainties. ... we do not expect mining capex to rise sharply in the near term despite the fact that market prices have exceeded marginal costs."