A quiet summer? Not for the UK’s big mining names.
With commodity prices on the move and a changing of the guard in several boardrooms, there’s more going on beneath the surface than the market might suggest.
Glencore PLC (LSE:GLEN) has kicked off the reporting season with a $1bn share buyback, while Rio Tinto Ltd (LSE:RIO, ASX:RIO, OTC:RTNTF) is dealing with the abrupt departure of its chief executive.
Elsewhere, precious metal producers are enjoying a tailwind from record gold and silver prices, giving them a welcome break after a run of tougher quarters.
So who’s set to deliver?
And who’s likely to disappoint?
RBC’s latest quarterly preview gives us a good read on where the smart money is heading and where investors might want to tread carefully.
Let’s start with Glencore, which RBC calls its top pick among the diversified miners.
The miner and commodities trader doesn’t have the same reliance on iron ore as some of its peers and its coal business remains a strong earner. Despite a weaker first half, RBC still sees value, especially with the company trading on less than four times forecast earnings.
Rio Tinto is a different story. The company has managed to bounce back operationally after cyclone-related production issues, but its leadership is now in flux following the surprise exit of Jakob Stausholm.
Iron pressure
With iron ore prices facing pressure from increased supply out of Simandou, RBC sees limited upside and has trimmed its price target to 4,700p. It’s sticking with a neutral view.
Anglo American PLC (LSE:AAL) also finds itself under a cloud. The group is in the middle of a major portfolio reshuffle, trying to offload its diamond, coal and nickel assets.
Diamonds in particular remain a problem, with prices under pressure and little sign yet of a recovery. RBC doesn’t see much appetite from buyers to meet book value, which could complicate disposal plans.
On a more positive note, Antofagasta PLC (LSE:ANTO) is expected to post a decent quarter, helped by better volumes at Los Pelambres and higher gold prices.
Expectations in check
Even so, RBC is keeping its expectations in check, maintaining a hold rating. The real bright spots are among the precious metal producers.
Endeavour Mining PLC (LSE:EDV, TSX:EDV, OTCQX:EDVMF) is forecast to pay a special dividend after three straight quarters of positive free cash flow. Hochschild Mining is still favoured despite operational challenges in Brazil.
In short, the picture is mixed. But for investors willing to dig through the detail, there’s still value to be found — especially in those miners with strong balance sheets and a bit of dividend firepower.