Investors keep tabs on miners
• Activist shareholders apply pressure in an attempt to squeeze out the most profit from recovery in commodities
The world’s mining giants better get used to the attention. Their recovery from a price collapse that sent the industry spiralling into crisis is delivering a fresh challenge: renewed scrutiny from major investors eager to magnify returns.
The world’s mining giants better get used to the attention. Their recovery from a price collapse that sent the industry spiralling into crisis is delivering a fresh challenge: renewed scrutiny from major investors eager to magnify returns.
Billionaires Paul Singer, Alisher Usmanov and Anil Agarwal are among those to add holdings in 2017 after profit rebounded from 2015 and 2016.
Mining companies’ management will have to adapt to a more critical eye and greater public notice as their businesses become more compelling to investors, according to Brenton Saunders, a Sydney-based analyst and portfolio manager at BT Investment Management.
“Everybody is being questioned,” Saunders said.
“Investors have grown up a little in the post-supercycle period, in terms of the way they evaluate strategy.”
BHP Billiton, the world’s top miner, is fending off a threepronged proposal from Singer’s Elliott Management, which the hedge fund believes will deliver a 50% lift to returns.
Restive investors, including Elliott, were pushing mining companies to reappraise strategy by focusing on issues that existing holders might have become weary of raising, said Saunders. “Even though the questions can often be quite obvious and clumsy, it does make everybody sit up and think,” he said.
While Agarwal, Anglo American’s new investor, says he is no activist and is backing management, his ultimate intentions after becoming its secondbiggest shareholder in March remain unclear.
Analysts have speculated that he might be planning to force a break-up of the company or engineer a merger.
On Monday, BHP and Arconic, a US-based maker of jet and automotive parts, rejected separate proposals by Elliott to overhaul their operations.
BHP said the benefits of the hedge fund’s ideas would be outweighed by their costs and were not worth the risk.
BHP is working with Goldman Sachs on its defence, according to people with knowledge of the matter.
Elliott’s attempts to oust Klaus Kleinfeld as CEO of Arconic risk jeopardising ties to customers, according to the company, which said its current strategy had the backing of Airbus and Boeing.
The price-to-book ratio of the Bloomberg world mining index of almost 130 producers has jumped since tumbling to the lowest on record in 2016, touching a near four-year high in February, as investors ascribe a greater value to the companies’ assets. The index has surged more than 80% since raw material prices bottomed in early 2016.
NEAR-DEATH EXPERIENCE
The sector survived a “neardeath experience”, Franconevada CEO David Harquail said in March.
The clamour for change and higher returns from some activist investors comes after they underinvested during the sector’s downturn, according to Craig Evans, a Sydney-based portfolio manager for Tribeca Investment Partners.
“We still feel there are a lot of people who are underweight this space at an institutional level,” Evans said. “In the short term, we’re pretty bullish as buyers in this space. We think more will come back over the short to medium term.”
Others remain cautious. Prices of commodities, including iron ore and coking coal, were likely to fall as much as 40% over the next three years as demand peaked, Dion Hershan, MD of Australian equities at Yarra Capital Management, said in a letter to investors following a visit to China.