Min­ing sec­tor down nearly 13% this year on mul­ti­ple head­winds

Nine out of 11 FTSE 350 sec­tor con­stituents have seen their share price fall so far in 2018

Shares - - BIG NEWS - (DC)

The FTSE 350 min­ing sec­tor has dis­ap­pointed in­vestors this year, down 12.7% in value. Most com­pa­nies should have been in bet­ter fi­nan­cial and op­er­a­tional shape, hav­ing stream­lined over the past five years fol­low­ing the pre­vi­ous com­modi­ties crash. Un­for­tu­nately a mul­ti­tude of fac­tors have weighed on share price per­for­mance.

The es­ca­lat­ing trade war be­tween the US and China has been a ma­jor fac­tor as in­vestors fear that Chi­nese com­modi­ties de­mand will be hit. Ex­ac­er­bat­ing the sit­u­a­tion has been tighter credit in China act­ing as an­other head­wind for com­modi­ties de­mand.

The Chi­nese govern­ment re­cently ap­pears to be more ac­com­moda­tive around mon­e­tary pol­icy such as pro­vid­ing liq­uid­ity for in­ter-bank lend­ing, al­though there are no signs of ‘stim­u­lus flood gates open­ing’, says Liberum an­a­lyst Ben Davis. He says it is dif­fi­cult to be neg­a­tive on di­ver­si­fied FTSE 100 min­ers such as Glen­core (GLEN) and Rio Tinto (RIO) be­cause of mo­men­tum in the Chi­nese prop­erty de­vel­op­ment mar­ket.

‘How­ever we could be in a very dif­fer­ent po­si­tion by the end of the year if the Chi­nese govern­ment have not pushed on the mon­e­tary stim­u­lus ac­cel­er­a­tor pedal.’ He fears that prop­erty de­vel­op­ers will be left with ex­cess in­ven­tory if the cur­rent cy­cle runs out of steam.

Some min­ing stocks have suf­fered be­cause of com­pany-spe­cific is­sues. Kaza­khstan-based cop­per miner Kaz Min­er­als (KAZ) is down 47% year-to-date in part caused by neg­a­tive re­ac­tion to a $900m deal to buy a Rus­sian cop­per pro­ject. An­a­lysts ques­tioned the logic, say­ing it re­quires high cap­i­tal ex­pen­di­ture and is lo­cated in a very dif­fi­cult place to work be­cause of ex­treme cold tem­per­a­tures.

Pre­cious metal min­ers Fres­nillo (FRES) and Cen­tamin (CEY) has suf­fered from op­er­a­tional is­sues. Rand­gold Re­sources (RRS) has bat­tled re­source na­tion­al­ism is­sues; and Glen­core has been en­gaged in a court bat­tle.

Rio Tinto and BHP Bil­li­ton (BLT) are either sit­ting on, or are about to re­ceive, a lot of cash gen­er­ated from op­er­a­tions and as­set sales. There is lim­ited ap­petite to do large deals in the min­ing sec­tor at present, so this cash is ul­ti­mately be­ing used to fund div­i­dends and share buy­backs.

Shares in An­glo Amer­i­can (AAL) have out­per­formed the sec­tor, al­beit they are only flat year-to-date. It has been linked with po­ten­tial carve­out in­ter­est from 19.35% share­holder Vol­can.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.