It’s old news that mining companies are suffering from a collapse in metals and minerals prices, but their shares have to stop tumbling eventually, don’t they? The answer is an obvious yes, but will it be this week, as two of our most heavily-traded miners have plunged to new 52-week lows yet again?
BHP Billiton (LSE: BLT) produces iron ore, copper, potash, coal, petroleum… and that diversity should help protect it compared to single-resource miners, shouldn’t it? Not a bit of it, as the share price has fallen 40% over the past 12 months to a new low of 877p at Thursday’s close.
Dam collapse
The latest slide has been worsened by a disaster at the Samarco iron ore operation in Brazil, in which BHP holds a 50% stake. A dam there has failed, releasing “significant” mine tailings and damaging a second dam in the three-tier dam complex. But more significantly, the community of Bento Rodrigues has been flooded and other communities have been affected — and there are fatalities, though the number is not yet known.
Without meaning to sound cynical, could this latest news perhaps signal a time of maximum pessimism, which is so often the best time to buy shares in a company? That depends on where BHP Billiton is in the commodities cycle — and the current cycle is one of epic proportions. BHP’s shares were fetching around £25 just a few short years ago in 2011, with the Western financial crisis followed by a slowdown in Chinese growth, which is looking worse than we feared, extending the subsequent bear phase beyond living memory.
In ten years’ time I’m sure BHP shares will have rewarded anyone who buys today, but over the next year I have no idea — the price seems as likely to fall another 50% as rise 50%.
Financial disaster?
The 52-week low of 450p at Anglo American (LSE: AAL) represents a 64% fall in just 12 months, and the shares were as high as £34 in 2011 — the stock has seen an 87% fall from its peak compared to BHP’s mere 65% drop.
Anglo has had its share of disasters in the past, and the latest is looking like a financial one. While the company is focusing on selling non-core assets in an attempt to make a dent in its huge debt mountain, many in the City are thinking that it might not be sufficient and that Anglo American could be the next major miner, after Glencore, to turn to its shareholders with cap in hand — and that the forecast dividend is excessive and will have to be slashed.
Thursday’s announcement of senior management changes serves to reinforce those fears, as we hear that the chief of Anglo’s Brazilian iron ore business is stepping down to pursue other opportunities, and that Peter Whitcutt has been appointed as the new boss of the company’s marketing business.
Worst performer
Chief Executive Mark Cutifani has made it clear that he wants a renewed focus on Anglo’s sales and marketing — the idea of a “Get your lovely platinum here, it’s better than anyone else’s” drive might seem strange, but the move is more focused on the firm’s commodities brokerage in a similar way to Glencore’s.
Of the world’s top five miners, Anglo American’s share price fall has been the worst, and something needs to be done to stop the rot. Whether the latest moves are just window dressing or a realistic directional adjustment remains to be seen.