It doesn’t take a great detective to see the carnage that’s hit the mining sector, with shares in all the big names trading around 52-week lows. The prices of commodities continue to slide, and the prospect for any upturn has been dealt a couple of blows lately.
The price of crude oil has been recovering a little since scraping $50 a barrel in March, and only a few weeks ago it was back up around $60. But since the start of July we’ve seen a fresh crisis with the black stuff now selling for less than $48.
In parallel with that we’ve had the Chinese stock market crash, with the Shanghai Composite Index having lost around a third of its value since early June. Government intervention in the country’s rigged markets seemed to have halted the fall for a while, but we saw fresh panic last Friday with the biggest one-day fall since 2007 — even the deluded Chinese government can’t buck the market in the long run.
BHP Billiton
BHP Billiton (LSE: BLT) is in the enigmatic position of managing its operations very well, yet suffering a 42% share price fall over the past 12 months, to 1,130p. For the year ended June, the company reported a 9% rise in overall production, with petroleum production up 4%, copper unchanged, and Western Australia Iron Ore up 13% to a new record. CEO Andrew Mackenzie said “We have improved the performance of our equipment, reduced costs, and increased volumes despite a significant reduction in capital spend“.
Full results are due on 25 August, with analysts predicting a 50% fall in EPS.
Antofagasta
At copper miner Antofagasta (LSE: ANTO) we saw a reasonable year for production too. Copper output was 2.3% down on the previous year due to some lower grade ore coming out, but it was up in the final quarter. Production of that valuable by-product gold rose 27%, with molybdenum down a little. Overall, the company told us that “full year copper, gold and molybdenum production and net cash costs all beat guidance“. Some local disruptions damaged the first quarter this year, but operations are apparently back to normal now.
Antofagasta shares are down 32% over 12 months, to 576p.
Vedanta
But those two price falls look almost healthy compared to Vedanta (LSE: VED), which has seen its shares slump 64% in a year to 399p, and it’s not really hard to see why after the India-focused miner suffered a $6.6bn writedown on some of its assets in that country. Free cash flow in the year to March was down, and net debt rose by $0.5bn to $8.5bn.
There’s a further loss expected from Vedanta for 2016, and the high dividend looks very insecure.
Buy them?
While in the long term, there’s a good chance we’d see some profits if we bought top-quality miners like BHP now, there’s very likely to be more pain before things get better — especially as the long-feared Chinese wobble is getting, well, wobblier, and the authorities don’t seem to be managing the transition from state projects to private enterprise too well.