Fortunes for the various sectors of the FTSE 100 have been very mixed this year, with one in particular having a terrible year. Which one? Yes, it’s mining that represented five of the seven biggest losers in the index in 2015, including the bottom three.
In reverse order, we start with BHP Billiton (LSE: BLT) in third-from-bottom position, with a loss of 39.6% to 761p. Although the company’s production has been strong, the problem is that prices of commodities have been plunging even further in 2015, bringing a 52% fall in EPS for the year ended in June. And there’s a further 58% fall forecast for the current year, which would put the shares on a P/E of 23.
A disastrous dam failure in November at the Samarco iron ore operation in Brazil, in which BHP holds a 50% stake, led to serious flooding and a number of deaths. That tragedy hammered-in the last nail for BHP’s disastrous year.
From a peak in December 2010, BHP shares are now down 68%. Can they recover? Probably. But with metals and minerals demands still low, supplies high, and prices through the floor, it might take some time.
The mighty fallen
Second-from-bottom is Glencore (LSE: GLEN) with a 68.7% price fall in 2015 to 89.8p. Glencore has been focusing on cost and debt reduction, leading to the closing of some facilities and the slashing of the dividend. And there was a big new share placing in September. There have even been claims that Glencore could actually go bust, but its management have been going to great lengths to refute such talk. It published an update recently telling us it would “remain comfortably free cash flow positive at materially lower [commodity] price levels“.
But debt is a serious issue, and the company is aiming to get it down to “$18-19 billion by the end of 2016“. Wow, that’s still a lot!
Some contrarian investors might see this year’s losers like Glencore as good punts for recovery next year. But right now I’d see that strategy as a pure gamble, and there are less risky commodity shares out there if that’s really what you want.
It gets worse
But stealing the loser’s crown from the other contenders is Anglo American (LSE: AAL) with a 74% drop since the start of the year to 302p. Anglo American’s troubles stem not only from crashing commodities prices, but also from some strategic mistakes it has made in the past that have left it in financial trouble.
The company’s expansion into iron ore didn’t help and that particular dirt is now fetching only around $42 a tonne after a record low of $38.30 on 11 December. That means Anglo’s Kumba Iron Ore in South Africa is unprofitable. Anglo is on a cost-reduction path that will see disposals of a lot of its assets and around 85,000 redundancies.
It has a P/E of only six on 2015 expectations for a 55% EPS fall, rising only as far as nine based on a further 36% drop in 2016. Some might see that as a bargain. Personally, I see a company with a lot more pain to come.