Miners Under Focus for this Month – BHP, RIO, FMG & NCM

We are almost half-way into October 2019 and the time is approaching closer for the miners to disclose the quarterly performances. Investors would now be diligently tracking the performances of the major miners in the country.

According to the Department of Foreign Affairs & Trade, the trade surplus came down to $5,926 million in August 2019 (seasonally adjusted) on sequential terms. Further, on sequential terms, the exports declined by 3.4% and imports declined by 0.4% in August 2019.

Trade Balance (Source: Department of Foreign Affairs & Trade) 

Let us now acquaint ourselves with a few ASX listed metals and mining sector stocks:

BHP Group Limited (ASX: BHP)

Among the most sought-after companies on the ASX, BHP Group is a gigantic materials player with an offering that includes Iron Ore, Copper, Petroleum & Coal.

Petroleum

In the financial year ended 30 June 2019, the company’s average sale price for crude oil was USD 66.59 per barrel, which was higher compared to the previous year. The average sale price realised for LNG was USD 9.43 per Mcf. For FY 2020, the company expects to produce between 110 to 116 MMboe.

Copper

In FY 2019, the company’s average realised sale price was USD 2.62 per pound, which was lower due to escalating uncertainty. Revenue from copper decreased by USD 1.9 billion to USD 10.8 billion. In FY 2020, the company expects to produce 1,705 and 1,820 kt of copper.

Iron Ore

In FY 2019, the company’s average realised sale price was USD 66.68 per wet metric tonne, which was higher compared to the last year due to the tailings dam collapse in Brazil, impacting supplies. The revenue from Iron ore increased by USD 2.4 billion to USD 17.3 billion for the period. In FY2020, the company expects to produce between 242 and 253 Mt from Western Australia Iron Ore operation, and 273 Mt to 286 Mt on a 100% basis.

Coal

In FY 2019, the company’s average realised sales price for metallurgical coal was USD 199.61 per tonne for hard coking coal, and weak coking coal realised average sale price of USD 131.7 per tonne. In energy coal, the company’s average realised sale price was USD 77.9 per tonne. Its revenues from coal increased by USD 0.2 billion to USD 9.1 billion.

In FY 2020, the company is expecting to produce metallurgical coal between 41 and 45 Mt, or 73 and 79 Mt on a 100 per cent basis. Energy Coal production is expected to be in the range of approx. 24 to 26 Mt.

On 15 October 2019, BHP stock was trading at $35.965, down by 1.547% (at AEST 1:02 PM).

Rio Tinto Limited (ASX: RIO)

Rio Tinto is engaged in the exploration and marketing of Iron ore, Aluminium, Copper & Diamonds, and Energy & Minerals.

Recently, the company presented at the Bernstein Strategic Decisions Conference in London. Accordingly, the company has acknowledged a slowdown in the global economy with global growth tracking at 2015/16 cyclical lows.

It was said that the trade policy uncertainty has been weighing on global growth, and the majority of the central bankers have taken an accommodative stance. Chinese industrial activity has been mixed, property & infrastructure, providing a cushion for other parts of the economy that are slowing.

Balance Sheet (Source: RIO’s Bernstein Strategic Decisions Conference) 

Commodity Mix

It was said that the Iron ore fundamentals remained strong with increasing steel production in China, and above-average iron ore offtake at Chinese ports. Global steel production increased by 4.4% to 30 June 2019 (H1 2019) over the year. Iron ore stocks at port reduced by ~20% to the period ended 30 June 2019.

However, the favourable iron ore prices were offset by challenging aluminium and copper market conditions. Aluminium prices were tracking down by 12% over the year at H1 2019, and global demand growth fell by ~1% in H1 2019 over pcp.

Further, Aluminium supply has increased due to the lifting of sanction, and a significant proportion of producers are currently unprofitable. Besides, Copper prices were trending down by 5% over the year, attributing macro-economic concerns, and trade concerns halting sentiments.

On 15 October 2019, RIO stock was trading at $90.57, falling down by 1.458% (at AEST 1:08 PM).

Fortescue Metals Group Ltd (ASX: FMG)

Recently, the company has announced an extension of its on-market share buy-back program as a part of its capital management program. Accordingly, the company would continue its buy-back period for an additional twelve months period until 10 October 2020.

Further, the total amount of the buyback is anticipated at $500 million, and the company might buy back shares worth $500 million in the period, subject to non-trading periods or closing of the program. The buy-back remains an important part of the company’s successful execution of capital management strategy.

Besides, all shares purchased in the buy-back program would be cancelled. The number of shares purchased and the timing of the buy-back depends on the company’s share price and market conditions.

In the year ended 30 June 2019, the company shipped 167.7million tonnes of iron ore and generated net profit after tax of USD 3.2 billion. The net debt of the company stood at USD 2.1 billion.

Revenue from ordinary activities was up 45% to USD 9,965 million compared to USD 6,887 million a year ago. Gross profit for the period was USD 4,850 million compared to USD 1,957 million in the previous year.

Profit for the year after income tax was USD 3,187 million for the period compared to USD 878 million in the previous year. Further, the basic earnings per share for the period was US 103.1 cents in FY 2019 compared to US 28.2 cents in the previous year.

On 15 October 2019, FMG stock was trading at $8.665, down by 3.184% (at AEST 1:14 PM).

Newcrest Mining Limited (ASX: NCM)

The company is metals & mining company engaged in the exploration, mine development, mine operated and into sale of gold and gold/copper concentrate.

In the year ended 30 June 2019, the company’s gold production was 6% higher for the period, and copper production of 36% higher. Its focus lies on safely maximising free cash flow from its operating assets resulted in delivering higher gold production at the lowest reported annual ASIC of $738/oz.

Despite lower realised gold and copper prices, the company’s ASIC margin increased by 12% compared to the prior year. In pursuing profitable opportunities, the company has struck a deal with Imperial Metals to procure a 70 percent joint-venture stake and operatorship of mine called Red Chris & adjacent tenements in British Columbia region (Canada).

Further, the average realised gold price for the period of USD 1,269 per ounce, which was 3% lower than the previous year. The average realised copper price for the period was USD 2.78 per pound, which was 10% lower than the previous period.

Portfolio (Source: Denver Gold Forum – Newcrest Presentation)

Reportedly, the higher production was due to better mill throughput and grade at Cadia, and higher recovery rates achieved at Telfer, which allowed to offset lower production from Gosowong & Lihir. A better copper production was attributed to higher mill throughput and grade at Cadia.

At the year-end, the company was carrying a net debt of USD 395 million, consisting of USD 1,995 million in corporate bonds less than USD 1,600 million of cash. It had a liquidity coverage of USD 3,600 million, consisting of USD 1,600 million of cash, and USD 2,000 million in committed undrawn bilateral bank facilities.

Further, the company signed agreements that extended the average maturity of these bank facilities by approximately two years to a period ranging from 2021 to 2023. Its credit ratings were upgraded by S&P and Moody in the period.

On 15 October 2019, NCM stock was trading at $33.41, down by 0.447% (at AEST 1:21 PM).


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