Prospect of Glencore dividend fuels optimism 2021 begins era of big miner payouts

THE resumption of dividends by Glencore when it reports its full-year results on Tuesday is likely to be a major catalyst in a 10% improvement in cash returns from the world’s largest diversified mining groups for 2020.

“Operational recovery for big miners … has been impressive after the Covid-19 impact,” said Citi in a report last week. “This is likely to enable miners to report solid earnings for full-year 2020 supported by stronger commodity prices across the complex,” it said.

The bank forecast Glencore’s earnings before interest, tax, depreciation, and amortisation (EBITDA) at $11bn for the year compared to the Vuma consensus of $10.7bn. Glencore will benefit from its exposure to the copper and zinc markets where prices have been high for both 2020 and into 2021 and beyond.

The copper price moved beyond $8,406/t today, its highest level in more than eight years owing to vaccine optimism and supply concerns, said Goldman Sachs which forecasts a deficit of 327,000 tons this year.

“We continue to maintain a positive outlook on the sector,” said RBC Capital Markets in January. “Upcoming results … from Rio Tinto and BHP should provide some positives on dividends and highlight the robust cash flows being generated in the current environment,” it said.

JP Morgan Cazenove said Rio Tinto and BHP were likely to announce dividends of $10bn each in 2021 ranking them among the largest corporate dividends in Europe for the year. However, investors would be looking for evidence payout rates were sustainable over the medium term.

“We believe the key focus of investors will be the sustainability of the highest profits for the industry since 2010/2011 and therefore the sustainability of exceptional shareholder payouts under Diversified Miners’ payout ratio based dividend policies,” the bank said.

Anglo American, which is due to report its full year results on February 25, has a consensus forecast of $9.4bn in EBITDA for 2020 with strong showings from its copper and platinum group metal assets, notwithstanding disruptions to the latter’s productions last year.

Whilst this is largely in line with 2019, Citi rates the company as having the best fundamentals of the diversifies for the current year. “AAL [Anglo American] is likely to see best earnings growth in 2021 from its exposure to iron ore, PGMs and copper while recovery in diamonds is continuing to strengthen,” the bank said.

Morgan Stanley said first cycle diamond sales by De Beers, in which Anglo has an 85% stake, provided “… further evidence that a demand recovery is well underway” in the diamond industry and underpinned strong profit recovery for De Beers.

It forecast an EBITDA of $929m from Anglo’s diamond business this year compared to £127m in 2020. The “full normalisation” of diamonds represented an EBITDA opportunity for Anglo American of about $900m and was “an important pillar” in Morgan Stanley’s view of being overweight on Anglo American.