Major miners wary of commods recovery

Reuters | Tue, 12 May 2009 17:50
[miningmx.com] -- MINING groups Anglo American and Rio Tinto are unsure when commodity markets might recover, but are confident about the long-term health of the sector, they said on Tuesday.

Xstrata and BHP Billiton, which along with rivals gave presentations at Merrill Lynch's mining conference in Barcelona, said there were early positive signs in China, but did not say when a recovery might take hold.

Anglo Chief Executive Cynthia Carroll said there were scant signs of an early rebound in demand, according to details of her presentation published on the company's website.

"Demand is likely to remain weak in the near term and timing for recovery remains uncertain," Carroll said at the conference, to which media were not invited.

A chart on the website showed demand for copper was expected to fall 7 percent this year, iron ore by 8 percent and platinum by 9 percent. At the same time, Chinese steel inventories have shot up by 56 percent, another graph showed.

WORST OVER FOR CHINA

Rio CEO Tom Albanese told the conference that the outlook remained uncertain despite some signs of recovery.

"For China the worst may be over, but downside risks remain," a Rio presentation said, referring to signs of improvement in most recent Chinese data.

BHP Billiton CEO Marius Kloppers said there were some signs of life in China, showing graphs of a rebound in the construction and real estate sectors as well as a bounce in the purchasing managers index.

The trade performance in China, however, was still unclear, he added.

Xstrata's CEO Mick Davis also held up China as a positive sign, pointing out that the speed of recovery in emerging so-called BRIC (Brazil, Russia, India and China) nations would be different than for OECD countries.

"Key Chinese growth drivers of domestic consumption and fixed asset investment remains resilient," the presentation said.

The "stronger for longer" thesis -- which argued that resilient demand emerging nations would keep metals prices above long-term historic levels -- was still valid, Davis added.

"The long-term story remains intact. Urbanisation in developing countries will not be derailed by the current downturn," Albanese's presentation said.

WELL POSITIONED

All three CEOs argued their firms were well positioned to weather the downturn after taking quick action to bolster balance sheets and cut costs.

Carroll said Anglo's debt situation was under control after the group raised $3.7 billion in bond issues, got $1.8 billion by selling its remaining stake in AngloGold Ashanti and saved $1.6 billion by suspending its dividend.

"No further refinancing required over the medium term," Anglo's presentation said.

Carroll reiterated that Anglo's optimisation and procurement programmes plan to deliver total benefits of $2 billion by 2011.

Xstrata cut debt after a successful $5.9 billion rights issue and Rio Tinto will be able to halve its heavy debt burden if it concludes a $19.5 billion with China's Chinalco.

The presentation said it plans to complete the deal by the end of July following approval by Australian authorities due by June 15 and subsequently by shareholders.