Hi @viharerda, some of it is explained here: https://www.visualcapitalist.com/volatile-returns-commodity-investing-through-miners-and-explorers/
That article is a couple of years old and is based on US stocks, but it is still useful for getting your head around leverage and commodity cycles. Basically, it's all about perceived upside and downside. Take Santos (STO) as an example in the energy sector. Santos were themselves highly leveraged because they had a huge amount of debt related to various LNG projects that they were involved in, as well as their traditional energy infrastructure assets in the Cooper Basin, such as their Moomba oil and gas processing hub. They were also relatively high cost producers compared to their peers at the big end of the energy sector. If you look at STO's 10-year graph, you'll see their share price was up around $12 to $13 for the 10 months leading up to early August 2014, then their SP took a swan dive down to $3.16 by 01-Jan-2016. Why? Because the oil price dropped -62% from US$98/barrel to US$37/barrel (for WTI Crude) over the same period. The corresponding drop in the STO SP was about -75%, and a lot of that was because people expected a large capital raising, and they got exactly that. Some also expected Santos to go broke because of their debt levels and lack of profitability at the lowest oil prices. Santos have issued a LOT more shares now - due to their CRs - however their share price is now $7.67 (yesterday's closing price), so their share price has more than doubled off their lows, despite the oil price only rising by around +89% from its lows.
You often get far greater moves with smaller companies. A quick example is a gold producer with a high AISC (all-in sustaining cost) of A$2,000/ounce of gold. When gold is selling for about A$2,200/ounce, they are making a 10% margin. However, if the gold price increases by +9% to A$2,400/ounce, the same gold producer is now making a 20% margin, so with a 9% increase in the gold price, the company has seen a 100% increase in their margin. Hopefully you get the idea. It works the other way too of course. In the same example, if the gold price dropped -18% from $2,200 to $1,800/oz (all in A$) then that gold producer goes from having 10% margins to being unprofitable because the gold is costing them roughly 10% more to dig up and process than what they can sell it for.
If you are VERY confident that a particular commodity price is going up, not down, buying a higher cost producer, i.e. one who is going to go from borderline profitable to much more profitable, is likely to provide good returns. In the example of the gold producer above, if the gold price rose +27% from A$2,200 to A$2,800, then their margin goes from 10% to 40%, so their returns in dollars could potentially quadruple (increase by 300%).
The reason why I don't personally follow that strategy is that I am rarely that confident that a commodity price is going up that far within a specified period of time, and if I was wrong and the price instead dropped by a decent percentage, the same company could become unprofitable and potentially go broke. I prefer to go with lower cost producers where the commodity price can also fall and the producer still remains profitable. This way, while I have to wait longer for the same sort of returns, or my returns might well be lower, there is far less chance that my companies are going to go broke or become worth between zero and not much.
So, to summarise, there are much higher potential returns within shorter timeframes available when pursuing that high-cost producer strategy - but only if you are right on the commodity price rising. The much safer and potentially slower way to make profits in the same sectors is to instead go with the lower cost producers who are going to make money in a much wider variety of pricing scenarios.
The thing to remember is that while lower cost producers will make MORE money when the commodity price increases than the higher cost producers do, that is usually already priced in with the lower cost producers, whereas the higher cost producers are often priced as though they are likely to go broke. Also, while both high cost and low cost producers see their margins increase when they can sell for higher prices (the underlying commodity price rises), the higher cost producers will have the greatest increase in their own margins, in percentage terms, which has a direct bearing on their profitability as well as the market's perception of their future prospects. It is this potential positive market re-rating that can give your returns such a boost when this strategy does play out as planned. If you are right.
Additional: I see now Noddy has already explained this all much more succinctly than I have.