TAKING THE PULSE: UK-listed miners are expected to deliver
higher earnings in the first half of 2010 after spending most of
last year conserving cash and reducing costs in order to buffer
themselves against a severe global economic downturn.
In August, miners are expected to deliver higher profits and
earnings, largely driven by rising demand in emerging markets such
as India and China and a fragile recovery in industrialized
nations, where inventories for some metals need to be
replenished.
Miners are cautiously optimistic about the outlook for
commodities but warn that in the near-term, prices and demand could
remain volatile.
"Uncertainty surrounds the near-term prospects for growth in the
developed world" due to the end of fiscal stimulus programs and
increase in sovereign debt, BHP Billiton Ltd (BHP), the world's
largest miner, said last week.
"Within China, measures introduced to reduce growth to more
sustainable levels mean volatility in commodity end-demand is
likely to persist," it added.
But over the long term, the mining industry remains upbeat about
global commodities demand due to industrialization and urbanization
trends in emerging markets.
"We view a repeat of the early 2009 downcycle as
unlikely--destocking will not be repeated on the same scale and we
now know that the dominance of China makes cost reversion in
commodities only transient," HSBC said in a note.
Miners are now focused on expanding production through organic
growth projects rather than mergers and acquisitions. The large
amounts of cash being generated from higher commodity prices and
higher production volumes, however, is leading some analysts to
wonder whether mining companies should be looking at better ways to
deploy their capital, particularly after reducing their debt
significantly over the past year.
COMPANIES TO WATCH:
Anglo American (AAL.LN) - 1H 10 July 30
MARKET EXPECTATIONS: Anglo American's first half operating
profit is expected to nearly double to $4.1 billion from $2.1
billion in the same period a year earlier due to higher commodity
prices and higher output, according to a company consensus forecast
of 12 analysts. Underlying earnings per share is forecast to rise
to $1.73 from $0.91.
MAIN FOCUS: Analysts are likely to focus on the company's growth
projects rather than its earnings since a significant portion of
its earnings has already been reported through the disclosure of
solid performances at Kumba Iron Ore Ltd (KIO.JO), Anglo Platinum
(AMS.JO) and De Beers, mining companies in which Anglo owns a
sizeable stake.
Analysts are expected to focus on Anglo American's Minas Rio
project, a large iron ore project in Brazil where reported delays
in securing land for building a slurry pipeline could lead to
potential budget and timeline overruns. The project is expected to
cost $3.8 billion and should start producing its first iron ore in
2012, with a ramp up to 26.5 million tons annually in 2013.
"Further delays and budget overruns should not be unexpected as
Anglo struggles to obtain necessary licenses and permits," Citicorp
said in a note.
Strata (ETA.LAN) - 1H 10 Au 3
MARKET EXPECTATIONS: Strata's earnings before interest, taxes,
depreciation, depreciation and amortization, or Ebitda, is expected
to rise 70% to $4.56 billion in the first half of the year compared
with $2.69 billion in the same period a year ago, according to a
company consensus of 11 analysts polled.
Attributable profit to shareholders is forecast to more than
double to $2.16 billion from $994 million, while earnings per share
is forecast to double to $0.76 from $0.38.
MAIN FOCUS: Analysts will seek an update regarding the company's
commitment to organic growth.
"Given that Xstrata is now in its 'organic growth phase' and the
biggest impact (in earnings growth terms) of that 'growth phase' is
due to come from coal and copper production expansions...both of
these business units underperformed on our expectations," said
Ambrian Partners. Xstrata's first half coal output was broadly flat
and mined copper output fell 3%.
Analysts will also seek an update on whether Xstrata might be
interested in pursuing a merger with Glencore, its commercial
partner and near 35% shareholder. Glencore is considering listing
its shares before its convertible bond matures in 2014, but may be
open to a merger with Xstrata.
Rio Tinto (RTP) - 1H 10 Aug 5
MARKET EXPECTATIONS: Rio Tinto's underlying earnings are
forecast to more than double to $5.52 billion in the first half of
the year compared with $2.57 billion in the same period a year
before, based on a company consensus of 22 analysts polled. The
underlying earnings will include a gain of $230 million, post-tax
and minority interests, due to the disposal of two undeveloped coal
properties.
MAIN FOCUS: Rio Tinto is operating close to capacity in most
operations, except for aluminum.
Analysts will seek an update on how volatile pricing and
concerns about a Chinese slowdown will affect the company's
shipments and pricing in the future.
Analysts will also seek an update on the company's organic
growth projects, the arbitration process with Ivanhoe Mines Ltd
(IVN.T) regarding its rights to increase its stake in the company,
and regulatory approval for its Australian iron ore production
joint venture with BHP.
BHP Billiton (BHP) - FY 09/10 Aug 25
MARKET EXPECTATIONS: BHP Billiton is forecast to report full
year net profit of $12.9 billion compared with net profit of $10.72
billion in the previous year, according to a Dow Jones Newswires
poll of three analysts.
Analysts revised their figures slightly lower after
incorporating BHP's fourth quarter production report and including
higher-than-expected costs in petroleum exploration and iron
ore.
MAIN FOCUS: BHP emerged from the global economic downturn
largely unscathed and with $8.38 billion in cash, as of Dec. 31,
2009. So far, the company hasn't made a sizeable acquisition to
effectively deploy its cash reserves.
Analysts will seek comments on how the company plans to better
utilize its cash. They will also seek comment on the strategy for
the company's petroleum division, given the current drilling
moratorium in the Gulf of Mexico and concerns about embattled BP
PLC's (BP) future in the region. BP is the operator of the Atlantis
platform, in which BHP owns a 44% stake.
"Looking forward, they're going to have to come up with
something interesting for their cash and (with a plan of what)
they're going to do in Gulf" given the drilling moratorium, said
Damien Hackett of Canaccord.
-By Alex MacDonald, Dow Jones Newswires; +44 207 842 9328;
alex.macdonald@dowjones.com
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