Resource stocks are in freefall and commodity prices are plunging, but some analysts and fund managers are saying this is the time to buy up mining equities.
"The tide is turning," Pengana Capital strategist Ric Ronge said.
"We can't ring the bell and tell you when commodities are going to rally but common sense suggests there's more upside than downside."
He estimated global resources were trading at more than a 20 per cent discount on the mid-cycle average while income assets were stretched. Some "bright spots" were even further undervalued, such as zinc and copper, which would see supply pressures ease with growing costs and mine closures.
Mr Ronge's comments came as the price of iron ore for immediate delivery at the port of Qingdao slumped $US1.82 to $US49.54 a tonne on Wednesday, taking the beleaguered commodity to a fresh 10-year low.
But the Pengana strategist said there were even reasons to be up-beat about iron ore giants such as Rio Tinto.
"Rio has been vilified by the industry for flooding the market with cheap iron ore," he said. "The reason is they have a competitive advantage leveraging the existing capital that's been sunk in the Pilbara. They've still got a very strong return."
Deustche Bank remains sanguine about the sector, issuing a series of "buy" recommendations in a research note this week that balanced strong free cash flow yields against downgraded earnings forecasts.
"We still think the mining sector has further to go on cost out considering the diesel price, Australian dollar and now labour costs only fell off a cliff in late 2014," analysts said.
Deustche said nickel, aluminium and alumina stocks were the pick of the bunch. While it maintained a "buy" recommendation on BHP Billiton, the bank argued "Rio is the stand-out big miner and is 12 months ahead of peers on resetting their business."
Deutsche said Rio had reduced costs in line with price declines, paid down a lot of debt in 2014, and delivered unexpectedly generous dividends.
But RBC commodities strategist Chris Drew said it was "still a little early to be getting into iron ore".
"Supply is going to continue to lift from the likes of BHP, Rio, Vale, Anglo American and Roy Hill," Mr Drew said.
At the same time, demand from China for the steel-making commodity continued to appear "subdued". While it traditionally lifts in the northern summer, Mr Drew said last year showed little seasonal impact.
The price of iron ore for immediate delivery at the port of Qingdao in China crashed through the $US50 mark overnight on Wednesday to reach $US49.53 in early afternoon trading on Thursday.
Mr Drew said given that fall, Fortescue Metals Group would be operating below an estimated production price of about $51 a tonne, including interest payments, freight, royalties and sustaining capital expenditure.
Those comments come as Fortescue chairman Andrew Forrest told The Australian Financial Review the two big miners' approach "incinerates tens of billions of dollars worth of value" for shareholders
Anthony Golowenko, a portfolio strategist at State Street Global Advisors, expected volatility in the resources sector to continue in 2015 and beyond.
"One feature of our strategy is a much lower representation of banks and resources," Mr Golowenko said. State Street has sought to limit exposure to Chinese demand and the domestic housing sector in 2015, focusing instead on industries such as gaming.
