MINING FINANCE / INVESTMENT

Sobering 12 months for Top 10 global mining companies

While the stock prices of the world's top mining co.s are well below their 52 week highs it does still leave them in a strong position with respect to M&A opportunities.

LONDON (Mineweb) - 

While few mining company stocks have ever got back to their peaks prior to the mega-crash of Q3 2008, there had been a decent recovery, but as the global recession has bitten and commodity prices have, for the most part, been hit hard, the biggest global mining companies have seen their stock prices, and market capitalisations fall.  While most are now off their recent low points, they have still suffered badly being on average around 30% below their 52 week highs.  Even so, the overall market situation, coupled with their strong balance sheets and cash generation abilities, does give them some great opportunities to build at the expense of those further down in the pecking order.

Compared with a year ago the order among the top companies has changed only a little - notably top potash miner PotashCorp moving above top gold miner, Barrick Gold, and copper and gold miner Freeport McMoRan when ranked by market capitalisation and a bit of a shakeout at the bottom.  However the differentials between some of the bigger ones have narrowed - in particular between Rio Tinto and Vale.  Rio got marked down heavily when it made its ill-timed (market wise) takeover of Alcan now nearly 5 years ago.  It has made a recovery from this  and could be poised to move back into the global No. 2 position in the years ahead.

The list is still dominated, though, by the big diversified miners - BHP Billiton, Vale, Rio Tinto - trailed by Anglo American and Xstrata.  The first four of these have been heavily supported by their big iron ore and coal interests, although China's recent slowing of growth and cuts in demand have begun to have a strong adverse impact.  The China situation has been taking its toll too on the base metals sector. 

Gold has been wavering of late - indeed ever since it peaked at the beginning of last September - and the pure gold miners in the table - Barrick and Goldcorp (although perhaps not quite so pure nowadays given Barrick's move into copper with the takeover of Equinox and Goldcorp's into primary silver and base metals production at Penasquito) - have seen their stocks suffer accordingly.  Of the other top gold miners, Newcrest and Newmont both come in just below the top 10 global miners of all types and we will look at the major gold miners by market capitalisation in a subsequent article.

With the global slowdown not showing any real signs of improvement, prices may continue to suffer until the markets, and commodity prices, begin to see something of a sustained upturn.  However as weaker stock and commodity prices begin to adversely affect new mine developments and existing mine expansions there is definitely the prospect that  anticipated supply growth will not materialise - at least not in the volumes anticipated - and with global population growth continuing unabated, this could start to have a positive impact on metal and mineral prices as time progresses.  This becomes something of a balancing act between supply growth and mining company revenues which does put the bigger diversified miners with strong balance sheets in a position to consolidate their positions at the top of the tree through organic growth and, particularly, through low price acquisitions as junior miners and explorers struggle to stay afloat. 

Mid-tier miners too may also be much more vulnerable to acquisition as liquidity problems in the markets in general force institutional shareholders to push companies in which they have holdings to sell out at prices higher than current market levels, but well below those which management may actually feel is justified.  We have already seen this happening.

Table: Top 10 Global Mining companies by Market Cap (Excluding energy stocks)

Source: Mineweb.com Charts & Data and Google.com, Compiled by Lawrence Williams