Record Profits and Blockbuster Payouts
The world’s biggest mining companies are about to start revealing how much cash they’re churning out from this year’s commodity boom. Look out for record profits followed by eye-watering dividend payouts.
The top-five western diversified miners may have earned a
combined $85 billion for the first half of the year, according to analyst
estimates, more than double the level from a year ago. Rio Tinto Group, the
first to report on Wednesday, is expected to announce $22 billion of profit for
the six months, on a par with its total for all of 2020.
The mining sector has been one of the biggest beneficiaries
from the world’s efforts to emerge from the pandemic. The trillions of dollars
poured into recovery packages have ignited demand for commodities like steel,
iron ore and aluminum, driving prices sharply higher and sending inflation
pressures rippling through the global economy.
And while previous rallies lured the industry into ambitious
investment plans to build and expand mines, many producers this time appear
content to return their profit windfalls to investors. The two biggest — Rio
and larger rival BHP Group — have already been funneling record returns to
shareholders.
Each of the group of five majors — which also includes
Glencore Plc, Anglo American Plc and Vale SA — are expected to report their
biggest-ever earnings for the six months through June, according to average
analyst estimates compiled by Bloomberg. Rio could pay out 60% of its
underlying earnings, according to some analyst estimates.
“This should be a pretty much stellar set of results all
round,” said Ben Davis, an analyst at Liberum Capital. “We’re expecting record
dividends from BHP and Rio, while Anglo and Glencore also have the potential to
surprise.”
Iron ore has been a big driver of profit for the largest
producers. The world’s biggest commodity after oil hit a record in the
first-half, and has spent the last three months hovering around $200 a ton, a
level not seen in a decade. Steel and copper prices both set fresh records this
year, thermal coal has also soared, and even diamonds have had a resurgence.
Some prices have retreated recently amid concerns about rising
Covid-19 cases and as China moves to curb rising costs. Yet commodity prices
across the board remain historically high for now.
U.S. copper miner Freeport-McMoRan Inc. gave a hint of what
to expect when it reported last week. The company has wiped out $5 billion of
debt in the last 12 months, hitting its target months ahead of schedule, and
setting the stage for an increase in shareholder returns.
Anglo American Platinum Ltd. added to that on Monday. The
company, 79% owned by Anglo American, paid out a record dividend of $3.1
billion that equates to 100% of first-half headline earnings.
For the iron ore miners such as Vale, BHP and Rio, it
promises to be even better. Demand for the steelmaking ingredient, especially
from China, is rampant and supply is constrained. China, which accounts for
about half of global steel production, is making a record amount of the metal,
while iron ore supply has never recovered from two dam disasters in Brazil.
Of course, the mining companies are not immune to inflation
themselves — iron ore operations in Australia are grappling with a sharp rise
in labor costs due to worker shortages. And governments in resource-rich
countries, especially in Latin America, are also looking at the industry as a
source of extra revenue after the commodities rally.
For now though, the miners are cashing in.
Comments
Post a Comment