--Clyde Russell is a Reuters columnist. The views expressed are his own.--
By Clyde Russell
SINGAPORE, May 28 (Reuters) - There appears to be an outbreak of "cautious optimism" in the Asian commodities sector.
It was easy to lose track of the number of times the phrase popped up in presentations and conversations at four major commodities conferences in the region in the past two weeks.
However, defining what people meant by being cautiously optimistic was somewhat more challenging, although the common thread was a view that the worst is over for commodity prices, and the sector is once again worth looking at from an investment perspective.
Of course, it's easy to dismiss participants at the SGX Iron Ore Forum and the Asia Mining Congress in Singapore, the Asia Oil & Gas Conference in Kuala Lumpur and the LME Week Asia in Hong Kong as talking their books, or at least to their hopes.
But what will be key is how the expectations of better times ahead translates into action.
From a pricing perspective, there was widespread acknowledgement that the likelihood of strong rallies was very low, rather what producers, traders, buyers and investors are forecasting is a gradual grind higher as rising demand eats away the supply overhang created by over-investment in mines.
Where the cautious optimism was most evident was in the investment community, attending the Asia Mining Congress this week in Singapore.
With the sharp declines in the prices of many commodities, such as iron ore, coal and oil since the highs of 2011, it became virtually impossible to fund junior exploration and production companies.
The ASX 300 Metals & Mining Index, where the majority of small explorers are listed and try to raise capital, has dropped 49 percent since the high reached in April 2011.
The S&P/TSX Venture Composite Index serves much the same purpose for small explorers in Canada, and it has declined 71 percent since March 2011.
As Rick Rule, chairman of U.S.-based investment fund Sprott, pointed out, this means that these indexes are now considerably more attractively valued than they were four years ago.
The trick is to find the right companies in which to invest, given that there are still numerous zombie listings, where the company has no assets of value and no prospect of developing any resource project.
Other investors at the conference felt the junior sector still has further to decline, mainly as a way to force some of these zombie companies into bankruptcy and to encourage some dodgy operators out of the resource sector.
Developing mining projects has always been something of a wildcat industry, populated with what could be generously called colourful characters.
But it's increasingly clear that anybody considering investing serious money into resource projects is going to be far more careful than perhaps they might have been a few years back.
Private equity funds operating in the commodity space were happy to say they are seeing more interest and capital flowing their way, especially given that some high net worth individuals are looking to take some of their cash away from equity markets on the view that valuations are getting stretched too far ahead of the real economic situation in many countries.
But all the fund managers stressed that one of the main drivers of any decision to part with money was the quality of the management of the project, and this was probably more important than the quality of the resource, the challenges of whichever jurisdiction in which it is located and even the longer-term price outlook of the commodity to be mined.
Private equity funds are also less keen on listed companies, and with major banks largely withdrawing from commodities project finance, the way new ventures are likely to be funded will change.
Fewer initial public offerings, more long-term commitments and more exotic structures such as reserve listings in shell companies and royalty streaming are likely to increase in popularity.
Investors were also being more choosy about the commodities they would fund for developments, with gold and copper seemingly the most popular, followed by more supply constrained metals such as zinc and nickel, and then minor metals such as tungsten.
Iron ore and coal are dead in the water, with very little interest in either bulk commodity, the only exception being if you had a coal project that wasn't aimed at export markets, rather it was supplying a defined or existing domestic need.
Overall, what "cautious optimism" translates into is a renewed interest in commodity investment, but a recognition that returns will take longer to be delivered.
Editing by Joseph Radford