Diversified miners to post earnings surge

Reuters | Wed, 28 Jul 2010 12:22

[miningmx.com] -- MAJOR diversified miners are due to post surging first half results after a strong rebound in prices with demand driven by China and India.

Vale and Anglo American kick off the results season on Thursday and Friday respectively.

Investors expect a more cautious tone for the second half as prices look to have peaked and they will be watching whether costs are being kept under control.

"In general we're looking at some headwinds going into the second half," said analyst Alison Turner at Panmure Gordon in London.

"Some of the prices that we've seen in commodities in the first half probably look to have been something of a windfall, that we may not see repeated in the second half," she added.

The average price of copper during the second quarter was 50% higher than the same period a year ago, but after touching highs in April, it has shed about 12%.

Spot iron ore prices have given up nearly 30% since hitting peaks in the second quarter.

The firms' outlook statements will probably reiterate that they are cautious about the coming months but confident about medium-term demand, driven by China and Inda, analysts said.

The heads of Rio Tinto and BHP Billiton have recently warned about the impact of Europe's debt crisis slowing global growth and China's efforts to cool growth weighing on commodities demand.

"China's always the biggest risk for these companies, now," said Tim Schroeders, a portfolio manager at Pengana Capital in Australia, adding that he was confident that even if China's annual growth slowed to eight percent, that would still be good for commodity prices.

Anglo American Anglo American, listed in London and Johannesburg, which posts results on Friday, will be under scrutiny by investors worried about its huge Minas Rio iron ore project in Brazil.

Worries have simmered since news reports said earlier this month that land tenure issues would probably delay the start-up of the new mine by one year until 2013.

Shareholders will also be hoping that the group, which owns the world's biggest platinum producer, Anglo Platinum, will reinstate dividends after suspending them last year during the downturn to conserve cash.

Anglo has previously said it plans to restart payouts either at the interim stage or at the end of the year.

It is expected to post a 90% jump in first half underlying earnings per share to $1.73, according to a consensus of 12 analyst estimates gathered by the company.

BHP Billiton

Analysts said results for BHP -the world's biggest mining group - could benefit from having a bigger portion of sales on shorter term iron ore pricing rather than quarterly pricing.

BHP, which reports on August 25, is expected to post net profit before one-offs of $7.06bn for the second half of its fiscal year that ends in June, up 54% from $4.59bn in the same period last year, according to Thomson Reuters data.

In this uncertain environment where commodities have come off a bit, I think they're more likely to keep their powder dry

While BHP has the strongest balance sheet of the major miners, fund managers discounted the likelihood of BHP launching a share buyback.

This is because CEO, Marius Kloppers is cautious about the outlook, it will need to pay Rio Tinto around $5.8bn if their iron ore joint venture goes ahead and it has a long pipeline of projects to fund.

"In this uncertain environment where commodities have come off a bit, I think they're more likely to keep their powder dry," said Peter Chilton, an analyst at Constellation Capital Management, which owns BHP and Rio shares.

One fund manager said he expected BHP would look at capital management next year.

Chilton said BHP would want to hold on to capital for any acquisition opportunities, including those that might come up from BP, which trebled its divestment target to $30bn on Tuesday.