Industry Trend Analysis - Miners' Strategy: Capital & Supply Discipline To Persist Despite Better Performance - JULY 2017


BMI View: Miners will remain focused on capital and supply discipline, through debt reduction and efficiency enhancements , despite the modest recovery in global commodity prices. Major mining companies will now perform better over the coming years as 2015 marked the bottoming out of the mining downturn.

Major mining companies will now perform better over the coming years as 2015 marked the bottoming out of the mining downturn. In FY2016, large diversified mining companies such as Anglo American, Glencore, Vale, and Rio Tinto posted positive net incomes for the first time in years. Not only did these firms register profits, they were also successful at debt reduction. For instance, Glencore posted a profit of USD1.6bn in FY2016, and reduced net debt from USD25.9bn at the end of FY2015 to USD15.5bn at the end of FY2016. Similarly, Rio Tinto, Vale and Anglo posted profits of USD4.6bn, USD3.9bn and USD1.6bn, respectively, following years of losses.

Rio and Anglo American managed to reduce their net debts to below USD10bn each, specifically to USD9.6bn and USD8.5bn, respectively, at the end of FY2016 compared to USD 13.8bn and USD12.9bn at the end of 2016. Amongst these major miners, Vale was least successful at reducing debt, with a marginal decrease from USD25.2bn at the end of FY2015 to USD25.1bn at the end of FY2016. We believe miners will remain committed to debt reduction in 2017 and beyond, along with which their performance will continue on the uptrend. Reduced cost of debt servicing as interest payments decrease with debts paid off will contribute to better balance sheets. Most major miners have decided to restart dividends from FY2017 onwards.

FY2016 To Be Start Of Better Performance
Select Diversified Miners - Net Income Available to Common Shareholders (USDmn)
Source: Bloomberg, BMI

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