Miners roll out huge losses — but their shares are still rallying. Why?
This post from MarketWatch outlines two aspects of investing perfectly. First markets are forward looking and second, mining companies are doing a great job at getting their costs in order.
In all aspects of investing actual financial results have less of an impact on the stock price than expectations. This is outlined perfectly in the recent financial results of major mining companies. Many investors and company executives believe that the worst is behind us and with commodity prices moving up (or at the worst stabilized) forward guidance is more optimistic. Couple this with large companies cutting costs and focusing on key assets that generate profits at current metals prices, investors are looking past current earnings and investing in the future potential.
Click here to visit the MarketWatch site where this was first posted.
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BHP Billiton cuts dividends by 77%
Slumping metals prices have really started to bite at the world’s largest mining companies, going by corporate updates Tuesday. But investors are finding something to cheer in hefty cost savings and better-than-expected earnings, and that has sent commodity shares sharply higher.
BHP Billiton PLC BLT, +0.67% BHP, +1.63% BHP, +0.45% the world’s No.1 miner by market value, reported its worst-ever annual loss and cut its final dividend by 77%. That highlights just how much the industry is struggling with weak demand and stubbornly low commodity prices.
At the same time, Chilean copper producer Antofagasta PLC ANTO, +8.66% reported a slide in first-half profit and revenue.
Those latest results add to the picture painted by fellow miner Rio Tinto PLC RIO, +2.09% RIO, +2.47% RIO, +0.87% which revealed earlier in August that its underlying earnings had plunged 47%.
Even so, their shares would have none of it on Tuesday. Antofagasta led advancers on the FTSE 100 index UKX with a 7.1% rally, while BHP rose 3.5% after an initial loss at the open. As for the rest of the sector, shares of Anglo American PLC AAL gained 3.5%, Glencore PLC GLEN, GLCNF, climbed 2.7%, and Rio Tinto put on 2.7%.
And here’s why: While earnings have been lackluster, they weren’t as bad as feared. Both BHP and Antofagasta did better than expected, analysts said. On top of that, those miners delivered a positive surprise in measures meant to offset volatility in metals prices, such as cutting costs and bumping up productivity.
“Today’s results do not materially change our view on [BHP], and we reiterate our market-perform rating. The extent of cost savings is surely impressive,” said analysts at Bernstein in a note.
As for Antofagasta, analysts highlighted the company’s 25% drop in operating costs during the first half of the year. Mike van Dulken, head of research at Accendo Markets, said this has helped its shares break above £5.20 each, which has been a particularly difficult level to top since April 2015.
“This bodes well for £6 to be revisited, even if the copper price itself remains trapped within a narrowing trend of rising lows and falling highs going back to last year,” van Dulken said.
Antofagasta’s stock is up 17% this year, beating a gain of 11% for the whole of the FTSE 100. However, that year-to-date advance is easily dwarfed by those notched by other commodity companies. BHP has jumped 42%, Glencore has surged 119% and Anglo American has rocketed an impressive 202% since the start of 2016.
Exploration companies with huge resources still in the ground should just leave them there until the market price for these metals is much higher. Gold at $1300 is not as good as what the future will hold and the money that you can raise when metal prices are higher. The EPA did Northern Dynasty Minerals a favor by stalling their development, a lot of investors are seeing the potential of buying now and developing when the market price for metal will be much higher. Technology is advancing so fast that it will over come environmental concerns. This deposit will get the green light when the current administration changes hands. In the meantime NDM is not having trouble raising capital to stay afloat. DT
NAK looks very strong on The US market, after hours. DT
D.T:
I hope your right.
I’ve been waiting for this to happen for some time.
There are some powerful forces at work here.
Rio Tinto has a stake in this and I would be watching them for clues.
Like I said before”The gold isn’t going anywhere”
good luck.
Miners having losses could be due to commodity markets imposing metal prices on the companies that are too low to make mining profitable. Companies that are denied a profit die! Fewer surviving companies are seen as rare relative to the cash investors have to invest and therefore get their shares bid up in price.