Just how strong are the world's biggest miners?

A three-year review of ten of the world's biggest miners kicks some conventional wisdom in the head, but is otherwise fairly calming.

JOHANNESBURG  - 

Across the latest three calendar years, ten of the world's biggest miners produced an aggregate USD 195bn in operating cash flows, used USD 115bn of that for capital expenditure, and ended 2009 with USD 83bn in net debt, including cash. These kinds of surveys can now be made, given that the majority of earnings reports for 2009 have been publicised.

Measured on capital expenditure, and the ability to finance it from internal cash flows, BHP Billiton, the world's biggest diversified resources stock, easily outflanks the rest, having produced USD 51bn in operating cash flows over the past three years, just over a quarter of the total. The mega group also boasts an exceptionally strong balance sheet, relative to practically all parameters, including its market value, and cash generating capabilities.

Next up are Vale and Rio Tinto, with USD 68bn in aggregate generated over the past thee years. The three groups combined generated USD 119bn in operating cash flows over the past three years, well over half the total of the ten names selected. The three groups also rank as the world's biggest mining stocks, by value, and as owners of about 75% of the market in seaborne iron ore, demonstrably the world's most profitable mining franchise.

Possibly the biggest single event among the three groups was Rio Tinto's USD 38bn cash takeover of Alcan in 2007. Merged with Rio Tinto's aluminium division, the combined aluminium entity lost money in 2009. BHP Billiton, which mounted a takeover bid for Rio Tinto in 2008, must have breathed another sigh of relief.

Rio Tinto's longstanding blue blood pedigree and suite of world class assets pulled it through, assisted by a huge 2009 rights issue. Net debt fell from USD 39bn at the end of 2008 to USD 19bn, leaving the group with the continuing status as the world's most indebted mining company.

Seaborne iron ore helped to carry Rio Tinto as well, along with copper, which for years has persistently left aluminum eating dirt. Among the smaller base metals, zinc and lead had pretty good times in 2009. While coal, like iron ore, prices compressed during the year, margins remained pretty good, especially for coking coal, an iron ore bedfellow.

Next up is Freeport-McMoRan, which, despite the severe correction in copper prices during the second half of 2008, managed to generate substantial cash flows across three years; not as much as each of Anglo American and Xstrata, but ending 2009 with substantially less debt, despite a USD 13bn cash acquisition in 2007.

Freeport-McMoRan has also achieved a far better return on capital expenditure, one of the best in the global industry. As it turned out, Anglo American was hampered by heavy stock buybacks, particularly in 2006 and 2007, when nearly USD 10bn went that way. Across 2007 and 2008, the group spent nearly USD 6bn cash on Minas Rio and other iron ore assets in Brazil, overpaying for the assets at the top of a subcycle. The mistiming between the two sets of cash flows was unfortunate.

Had the stock buybacks been omitted, or lessened, Anglo American could have continued paying dividends through 2009; the suspension sent no few investors into silent rages. The group paid cash dividends of USD 1.6bn in 2008 and USD 1.5bn in 2007.

For its part, Xstrata spent a remarkable USD 27bn on acquisitions, across the four years starting in 2006. After raising USD 7.8bn by way of a rights issue in 2006, Xstrata raised another USD 5.7bn that way in 2009. Add it all up, and the two groups rank as notably indebted; Anglo American with USD 11bn net debt at the end of 2009, and Xstrata with net debt of USD 12.6bn.

Next up is Barrick, primarily a gold digger. The group has spent the past three years carefully balancing a rapidly rising capital expenditure programme against rising cash flows; the latter should not surprise, given record average dollar gold bullion prices for another successive year in 2009. The big deal for Barrick during 2009 was the USD 5.2bn it ploughed into virtually eliminating its hedge book, which, going forward, will enable it to achieve sale prices at just about spot prices. That deal was part-financed by a USD 4bn rights issue; net debt increased by more than USD 600m across 2009.

And then there are Anglo Platinum and PotashCorp, which each crawled through positively tough times during 2009. During 2008, Anglo Platinum showed that it could generate USD 2bn in operating cash flows, and PotashCorp, no less than USD 3bn. Anglo Platinum is busy staging a USD 1.6bn rights issue, and PotashCorp ended 2009 with USD 3.7bn in net debt, after a year of especially heavy capital expenditure.

It may not rank as one of the top ten mining companies by value, but Teck turned in one of the most impressive performances of 2009, and, for that matter, also for 2007 and 2008, with a sweet mix of coking coal, copper, and zinc. Debt is still notable, to be sure, but was nearly halved during 2009 to CAD 6.6bn. Teck was also drawn toward a top-of-cycle acquisition in 2008, shelling out CAD 12.1bn for Fording.

SUBSCRIBE to Mineweb.com's free daily newsletter now.

SHARE THIS ARTICLE

Disclaimer

MINEWEB is an interactive publication, with rolling deadlines through each day, commencing in the Sydney morning,  and concluding, 24 hours later,  in the Vancouver evening.  If you believe your side of an issue deserves inclusion, but has failed to meet one of our deadlines, you are invited to notify the Editor in Chief in Johannesburg, and we will include you in our editing and expanding on our stories. Email him at alechogg@gmail.com

Print story      Email story      Subscribe to free newsletter

Back

 

responses to this article

Name
Subject
Comment