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.
Shares in Glencore Plc, rose on Wednesday after the Swiss commodities trading and mining giant announced a $1 billion share buyback following better than expected first-half financial results.
Adjusted profits gained 8% to $6.5 billion thanks to a jump in output of copper, coal and oil and better trading conditions in grains, copper, zinc and nickel at the Baar, Switzerland-based group, the world’s fourth largest miner.
Glencore also finalized the $6.5 billion sale of its Las Bambas copper project to Chinese investors during the period, helping it to drive down debts and finance the share-buy back process which will last into Q1 next year.
Yesterday BHP Billiton shares slumped nearly 5% after the Anglo-Australian group, the world’s number one miner, announced the spinoff of assets worth $12 billion, but failed to announce an anticipated return of capital to shareholders.
The major diversified mining groups have come under pressure from shareholders to cut costs, throttle back expansion plans and return cash as the so-called commodities supercycle – a decade long increase in the price of most metals and minerals driven by an infrastructure investment boom in China – starts winding down.
Glencore CEO Ivan Glasenberg, South African born billionaire, who took the helm at the group following the merger with miner Xstrata last year, sounded upbeat about the prospects for the industry speaking to Bloomberg following the announcement:
“The supercycle ain’t over, China is still buying, demand for commodities hasn’t tapered off, it’s even higher than it’s ever been.
The demand is pretty good. We’ll grow. We may do acquisitions where you’re not creating more supply in the market.”
Glencore has been mentioned as a possible suitor for the yet-unnamed company being spun out of BHP which will have a range of assets including
nickel assets in South Africa and Colombia, South African and Australian thermal coal operations division and the Cannington lead and silver mine located in Queensland.
Mick Davis, the former chief executive of Xstrata who lost the top job at the merged company to Glasenberg has also been on the prowl after creating a $3 billion investment firm called X2 Resources Partners to create a new mining company.
Image by FT on Flickr.
