COLUMN-Diversified miners’ short-term challenges at odds with long-term views – by Clyde Russell (Reuters U.S. – August 21, 2013)

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Clyde Russell is a Reuters market analyst. The views expressed are his own.

LAUNCESTON, Australia, Aug 21 (Reuters) – The world’s top diversified mining companies are starting to resemble choir boys singing the same hymn about cutting projects and costs.

The recent financial results of BHP Billiton, Rio Tinto, Glencore Xstrata and Anglo American were remarkably similar, as were the accompanying comments by their chief executives.

All reported lower earnings, but not dramatically so, which may be a bit of a surprise given weaker commodity prices in the first half of 2013 and widespread concern of worse conditions to come.

And all four also repeated the mantra of cost cutting and slashing capital expenditure, while at the same time trying to give equity investors more of what they want in the form of dividends and higher share prices.

The question is whether this unanimity is the right path or whether the diversified miners are going too far in a bid to boost share prices.

The financial results are interesting from a commodity markets perspective as they show that conditions in the first half of 2013 were tough, but nowhere near as bad as the doom and gloom stories about falling Chinese demand growth would have led an observer to believe.

BHP’s attributable profit excluding one-offs fell to $6.12 billion in the six months to June, down from $7.18 billion a year earlier and also below the analysts’ consensus forecast of $7.16 billion.

A 15 percent decline in profit doesn’t look too bad when commodity prices were struggling.

BHP, the world’s largest diversified miner, also gets about 30 percent of its earnings from oil and gas, thus making the S&P GSCI index a good benchmark.

The S&P GSCI declined 11.6 percent from its 2013 peak in February to a low in April, from where it has gained 7.5 percent.

In contrast, BHP’s Australian-listed shares dropped 21.4 percent between their year high in February to the April low, before rallying 16.1 percent to trade around A$35.65 at midday Wednesday in Sydney.

What this shows is that BHP’s share price fell harder when commodity prices were declining, but equally rallied more when prices started to recover.

The same dynamic isn’t quite at work with Rio Tinto, which garners the bulk of its earnings from iron ore.

Rio’s share price slipped 30 percent between its 2013 high in February and the low in June, exactly matching the decline in the Asian spot iron ore .

Iron ore has since rallied 26 percent while Rio’s stock has gained only 18 percent, although the gap in relative performance may be explained by other issues facing Rio, such as its dispute with the Mongolian government over the financing of a $5 billion expansion of the giant Oyu Tolgoi copper mine.

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