Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
It was a tale of two markets on Friday as the shares of diversified mining majors were dumped and gold stocks surged after the UK’s vote to leave the European union wreaked havoc on financial and commodity markets.
In massive volumes in afternoon trade on Friday gold futures in New York for delivery in August, the most active contract, was priced at $1,321 an ounce after earlier in the day peaking at $1,362 an ounce up just under $100 from Thursday’s settlement and levels last seen March 2014. 2016 is turning into one of gold’s best years with the metal up 25% or nearly $270 an ounce since the start of the year.
It was a different story for copper with the metal falling as much 4.5% in early trade
It was a different story for copper with July contracts on the Comex falling as much 4.5% to $2.0660 a pound or some $4,554 a tonne. Like gold the copper also overshot early on as panic over the fallout of Brexit on the world economy and global trade spooked investors, and by early afternoon had retraced some of the declines to exchange hands for $2.1170. That brought copper back to breakeven on a year to date basis.
Iron ore also held up better than expected with the benchmark Chinese import assessment declining slightly to $51.40 a tonne. Iron ore is down sharply from 16-month highs struck mid-April, but is in bull territory for the year with a rise of 20%. Crude oil lost 5% a barrel to $47.54 on Friday, but is still up an astonishing 81% from its February 11 low of $26.20.
Incoming CEO Jean-Sébastien Jacques is said to be planning a $9 billion spin-out the company’s non-core businesses including Iron Ore Co of Canada
The diverging fortunes spilled over onto stock markets with shares in the world’s most valuable miner BHP Billiton (NYSE:BHP) losing 7.1% in New York. The $71 billion Melbourne-based company hit near decade lows at the end of last year following a deadly dam burst at an iron ore mine in Brazil it jointly owns with Vale, but despite today’s retreat is in the black for 2016 thanks to its exposure to rising oil and robust iron ore prices.
Shares in Vale (NYSE:VALE.P), the world’s top iron ore producer, fell 9.3% in New York. The Rio de Janeiro-based company which also holds the top spot for nickel production is up 43% in 2016 for a market value of $23.3 billion. Vale dropped to a more than a decade low in January following the Samarco disaster which is still the subject of a $44 billion civil lawsuit, turmoil in its home country and a weak iron ore price.
The world’s second largest miner based on revenue Rio Tinto (NYSE:RIO) declined 7.9% in New York affording it a market cap of $51.8 billion. The Melbourne-HQed company’s is in the midst of a overhaul of top management amid speculation that incoming CEO Jean-Sébastien Jacques, is planning to spin out the company’s non-core businesses — coal, uranium salt, borates and its Iron Ore Co. of Canada — as a $9 billion separate company in the fashion of BHP’s South32.
Freeport’s been struggling to get its $20 debt load under control following the ill-timed acquisition of oil and gas assets
Top listed copper producer Freeport-McMoRan (NYSE:FCX) plunged just under 10% with a 40 million shares having changed hands as the counter gets hit by metal and oil weakness. The Phoenix-based company is now worth $13.6 billion on the NYSE, down sharply from its end-April peak but still trading 56% for the better in 2016. Last month Freeport announced the sale of its massive Tenke Fungurume mine in the Democratic Republic of Congo for $2.7 billion.
Glencore (LON:GLEN) was the biggest loser on the day, with ADRs trading in New York coming in particular punishment falling 15.6%, following a 8.5% loss in London trading. The Swiss giant is the third largest copper miner and top trader of the metal. Glencore is up 54% in 2016 after falling to a record low last year. Like most of its peers Glencore has been struggling to get its debt load under control by shedding assets.
Anglo American (LON:AAL, OTCMKTS:AAUKF) gave up 9.6% in New York, but continues to hold onto 100% gains in 2016. Anglo, the world’s fifth largest publicly held mining company in terms of output, is in the middle of arguably the most far-reaching restructuring and downsizing program the mining sector has seen in many years which could the London-listed company with fewer than 20 mines from more than fifty before.
After falling to its its lowest since 1989 in September, today’s advance brings the world’s top producer of the metal’s gains for the year to a 178%
The gold sector enjoyed one of its best trading days (of which there has been many) this year with Toronto’s Barrick Gold (NYSE:ABX) which earlier this year was the best performing stock across all sectors on the Toronto Stock Exchange, reaching a three-year high with a 6% jump on Friday.
After falling to its its lowest since 1989 in September last year, today’s advance brings the world’s top producer of the metal’s gains since the start of the year to an astonishing 178%. At a market value of $23.6 billion in New York, the Toronto-based company is the most valuable gold mining company in the world.
World number two in terms of production Newmont Mining Corp (NYSE:NEM) pared some of its earlier gains for a 5.1% advance in afternoon trade following a more than 9% jump out of the gates on Friday. Denver-based Newmont, the only gold company that forms part of the S&P500 index, is also having a monster 2016, doubling since the beginning of the year.
Denver-based Newmont, the only gold company in the S&P500 index, is having a monster 2016, doubling since the beginning of the year
While others are disposing of mines, Newmont is building its portfolio and last year acquired the Cripple Creek & Victor gold mine in Colorado. Newmont also has five key projects that are in execution stage including the Turf Vent project in Nevada and Merian mine in South America expected to start production late in 2016.
American Depository Receipts of AngloGold Ashanti (NYSE:AU), the world’s third largest gold producer in terms of output, added 6.9% for a market value of $7 billion on the NYSE. AngloGold Ashanti is up 137% since the start of the year and trading at its highest since August 2014.
Goldcorp (TSE:G, NYSE:GG) climbed 5.6% for market capitalization of $14.9 billion in New York. The year-to-date increase for the Vancouver-based firm which recently saw a top management overhaul is more modest than its peers at 59%. Goldcorp recently lowered its production forecast for to 2.8 – 3.1 million ounces from 2016 to 2018 from about 3.5 million ounces in 2015 driven by production declines at older mines.
