Mining houses on the right side of the cycle

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Mining houses on the right side of the cycle

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Published Date: 2021-07-21 | Source: INCE|Community | Author: The Finance Ghost

Mining houses on the right side of the cycle

A few of the biggest names in mining released production updates or trading statements yesterday. The production updates in particular are highly detailed and investors in these companies are encouraged to access the full results.

BHP Group

The mining giant announced robust production volumes, including record iron ore production in Western Australia. BHP is highly diversified in terms of underlying commodities and geographical locations, with investors enjoying bumper profits as a result of high commodity prices.

The announcement gives numerous details related to underlying production and investors should read it accordingly. You can find it here.

The CEO's statement refers to the "megatrends of decarbonisation, electrification and population growth" which suggests that further portfolio changes within the group may be coming.

We already know that BHP is selling its 33.3% stake in Carrejon, a coal venture in Columbia, to Glencore. Anglo American was BHP's partner in the project and is also selling to Glencore, a company that isn't scared of coal exposure. BHP is recognising a $85m impairment related to this asset.

With substantial petroleum and coal interests in the group, it's uncertain what the future may hold as the company hopes to become more appealing to investors with an ESG mandate.

Anglo American

With the exit from thermal coal in its final stages, Anglo is focused on "future-enabling metals" - a nod to decarbonisation which is now a core theme among the world's largest mining houses.

Interestingly, a recovery in consumer demand has led to an increase in rough diamond production of 134%. PGM production increased 59%, iron ore production was up 6% (driven by Kumba - more details below) and copper production inched upwards by 2%.

The production report for the second quarter is available here.

Kumba Iron Ore

Kumba increased production by 12% but sales grew by only 3%, as the company dealt with rail constraints and weather issues at Saldanha Port.

Export sales were up 5% but domestic off-take was down. The group exported 99% of its production. The high quality of the ore helped Kumba achieve a realised price of $220 per dry metric tonne (dmt), significantly higher than the benchmark price of $166 per dmt.

So, although sales volumes were only slightly higher, the favourable commodity prices put Headline Earnings Per Share (HEPS) on a rocketship, expected to be between 171% and 182% higher than in the six months to June 2020.

The trading statement is available here.

Anglo American Platinum

To put Kumba's iron ore performance in context, Amplats demonstrated how profitable mining can be when commodity prices head in the right direction.

HEPS for the six months to June 2021 is expected to be between 560% and 578% higher than the comparable period. It's useful to put real numbers to that. Headline Earnings will grow from R6.9bn in H1 2020 to around R46bn in H1 2021.

A 29% increase in the rand basket price, combined with higher sales volumes as a result of fewer Covid-19 disruptions, helped drive this result.

The production report and trading statement can be accessed here.

Disclaimer: the author holds shares in BHP




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