After a hugely successful decade, bar some occasional ill-timed acquisitions, the major diversified miners are beginning to see earnings dive as China draws in its industrial horns.
LONDON (MINEWEB) - The big five western diversified mining companies – BHP Billiton, Rio Tinto, Vale, Anglo American and Xstrata, may have been the place to make blue chip resource stock investments really pay off over the past 10 years or so of the global mining and minerals supercycle, but could their stellar performance be coming to an end?
Certainly the latest financial figures coming out suggest that things may be turning down for all of them – some had been falling back earlier – but there looks to be the definite possibility that matters might well get worse before they get better – particularly with China, on which the top three are heavily dependent, perhaps beginning to rethink its industrial structure.
The success of the diversified miners has not been due to gold, despite the latter’s sterling performance over the past 12 years – indeed none are heavily invested in primary precious metals mining – nor even in copper or other base metals in which all do have major interests, but primarily in the bulk-mined iron ore and coal which have been the principal contributors to their profit growth over the years – but with iron ore and coal prices slipping back quite sharply in the light of the Chinese downturn the fall-off in revenues is already beginning to have a serious impact and causing the miners to take a more cautious view on near term capital spending on new mines and expansion projects.
Despite some optimistic spoken assessments from company CEOs, weakness in coal and iron ore prices in particular is creating management headaches. Should this persist – and there’s no sign yet that it won’t get worse before it gets better – one can expect to see earnings, profits and stock prices continue to retreat as they have been for most of the year to date after a strong run up for most of them over the previous five to ten years.
While base metals have not been the leading money earner for the big diversified miners they are still important and if prices were strong could mitigate some of the income reductions in coal and iron ore – but they aren’t! BHP, Rio Tinto and Xstrata have some very significant copper mining operations, Rio is particularly big in aluminium after its perhaps ill-timed, and ill-priced, takeover of Alcan, while Vale is big in nickel.
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