By Alexandra Wexler in Cape Town, Scott Patterson in London and Rhiannon Hoyle in Sydney
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (February 20, 2018).
The world's biggest mining companies are again poised to shower
investors with billions of dollars and make deals, a turnaround
fueled by the global economy's renewed appetite for raw materials
and by the burgeoning electric-vehicle market.
Four of the world's top publicly listed miners -- BHP Billiton
Ltd., Rio Tinto PLC, Glencore PLC and Anglo American PLC -- have
rebounded after plummeting prices for commodities several years ago
led them to cut costs, slash dividends and dump assets.
Collectively, these companies' market values have increased by
about $200 billion in two years.
Investors stand to benefit. Analysts expect Glencore, Anglo and
BHP to report large increases in profits when they announce
earnings this week. BHP is expected to return $4 billion in cash to
investors this year, according to Macquarie Group Ltd., and
Glencore will likely announce a payout of about $2.2 billion, UBS
Ltd said.
Rio Tinto said this month that its yearly net profit almost
doubled to $8.76 billion, as the British-Australian miner increased
dividends and announced a new $1 billion share buyback. "I don't
think anyone is going to have any cause for complaint," Rio Tinto
Chief Financial Officer Chris Lynch said in an interview.
Rising commodity prices have driven the comeback, while the
mining giants also reap the benefits of sustained cost cuts
undertaken during the industry downturn a few years ago. Copper has
risen 20%, gold is up 8.9% and coal has climbed 12% over the past
12 months.
The metals market has been buoyed by a rare period of
synchronized economic growth in China, the U.S., Europe and major
economies elsewhere. Also helping: a chilly Chinese winter that
fueled coal purchases, the industry's expectations of a global
infrastructure push and a weaker U.S. dollar, which is the currency
used to buy most commodities. A weakening dollar allows
international buyers to purchase more.
Rising expectations of a coming surge in electric-vehicle sales
have also increased demand for the raw materials used to make the
vehicles' batteries. Cobalt, an important ingredient in lithium-ion
batteries, has more than doubled in price over the past year. The
price of nickel, another key ingredient, is up 20%.
So far, the big miners haven't indicated they will use their
windfalls to boost production or launch new projects, which they
did during the last boom to the tune of $1 trillion, according to
Sanford C. Bernstein research. Instead, they have played it safe by
reducing the debt on their balance sheets and returning cash to
shareholders.
"At the moment the mantra is all 'value over volume'...rewarding
shareholders for their patience and not getting carried away," said
Bernstein mining analyst Paul Gait. "We will see how long it
lasts."
The industry's buoyant mood was evident at its biggest annual
gathering earlier this month in Cape Town, South Africa, where much
of the chatter was about deal making, which had dried up during the
downturn. An "Investment Battlefield" stage was set up at the
conference to allow small companies to pitch projects to
investors.
By contrast, executives had struggled to put on a brave face
about the future at the 2016 conference, and attendance from
supporting industries was thin. Back then, Glencore was aiming to
raise at least $10 billion to reduce its debt by eliminating its
dividend, and was also mothballing mines, issuing $2.5 billion in
new stock and selling assets. Anglo had announced plans to sharply
scale back its business, including plans to shed 85,000
employees.
Times have changed. Last year, Glencore approached Bunge Ltd., a
$10 billion crop trader and processor, with a takeover proposal,
evidence of its being among the industry's most aggressive deal
makers. Rio Tinto says it is looking for deals. But mining
executives say it's still a tough market for acquisitions, since
few companies are eager to sell what appear to be increasingly
profitable businesses as commodity prices keep ascending.
"You are not going to steal assets in this day and age," Rio
Tinto's Mr. Lynch said.
Still, there remain serious challenges for the big miners. BHP,
the world's largest diversified mining company, faces a push from
activist investor Elliott Management to change its dual-listed,
London-Sydney structure. BHP says Elliott's proposals would do more
harm than good.
Big miners are also contending with some African countries
looking to cash in on the boom. The Democratic Republic of Congo,
the world's biggest cobalt producer and Africa's largest copper
producer, recently passed a mining code that will take a bigger
slice of miners' profits. The chairman of Congo's state mining
company, Gécamines SA, said the industry should be nationalized for
the public benefit.
"A bigger piece of the cake, that's the ultimate goal,"
Gécamines Chairman Albert Yuma Mulimbi said in an interview.
Write to Alexandra Wexler at alexandra.wexler@wsj.com, Scott
Patterson at scott.patterson@wsj.com and Rhiannon Hoyle at
rhiannon.hoyle@wsj.com
(END) Dow Jones Newswires
February 20, 2018 18:13 ET (23:13 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
BHP (NYSE:BHP)
Historical Stock Chart
From Aug 2024 to Sep 2024
BHP (NYSE:BHP)
Historical Stock Chart
From Sep 2023 to Sep 2024