Markets are fickle beasts.
This morning Shore Capital used the word “unsurprisingly” twice in its pre-open comment about BHP Billiton’s (LON:BLT) abysmal full year results.
It was “unsurprising” that the results were so bad. Of all the miners, BHP Billiton is most exposed to oil, and oil has been weak for many a long month now as US shale continues to surprise and the fissures in OPEC deepen.
Other commodities aren’t doing much better. Copper has been a poor performer this year, while iron ore, though off its lows, continues to be all about greater volumes at lower margins.
Add to that provisions related to the Samarco disaster, in which an entire village was wiped out, and BHP Billiton has not had a good year.
Expectations were for losses to hit US$5.8bn; they actually went well over US$6 bn.
Which is why Shore’s second “unsurprisingly” related to its expectation that BHP Billiton’s shares would fall on the open.
They didn’t.
In fact they outperformed peers, modestly.
All except Antofagasta (LON:ANTO) that is. Because, running against the prevailing trend in the copper market, Antofagasta actually put out a good set of results and had risen by more than 8% by mid-morning.
Antofagasta cut costs and increased production to offset weaker copper prices, and it worked. Underlying earnings (EBITDA) rose and earnings per share were broadly speaking flat.
So, good results from a copper company in a copper downturn? Bad results from a super-major resulting in a share price rise?
What is going on?
“Unsurprisingly,” the reasons aren’t too complex to unravel, although that’s easy to say in retrospect.
BHP’s cash flow was unexpectedly strong and its dividend, though cut, still beat expectations.
Antofagasta, meanwhile, cut costs and boosted production to the point where it has steadied the ship.
And this news came out into a market that was prepared to be indulgent: the five best performers on the FTSE this morning were the five major miners. Glencore was the weakest of the five, while Antofagasta was the strongest. BHP was second.
So, a good day for mining results and a market able to absorb bad news.
SP Angel’s commentary highlighted a weaker dollar as a cause for the boost to mining share prices, although in the post-Brexit world, dollar strength relative to sterling has tended to benefit miners, who earn income in dollars.
That effect may now be priced properly in, because SP Angel is back to a more traditional analysis – a weaker dollar may translate into higher metals prices, and therefore higher profits.
There’s also talk of the effects of further stimulus, possibly after the upcoming G20 summit next month, but some analysts, notably the mining team at Liberum, are sceptical about how much more of an effect stimulus can have.
As a consequence of that scepticism Liberum says sell both BHP Billiton and Antofagasta, in spite of today’s short-term fillips.
What can the smaller miners draw from all this?
First, the dollar is still king. Second, the market will reward fiscal discipline. Third, in the light of ongoing losses and weak commodity prices appetite for exploration joint ventures is likely to remain muted.
And fourth, don’t expect share price rises, unsurprising or no, to draw the endorsement of sceptical analysts.