Big Four miners languish amid demand, ESG, capex concerns

LONDON (Reuters) - The world’s biggest diversified miners have yet to see their share prices reflect their role as providers of the minerals needed for a shift to a low-carbon economy.

Mining companies provide minerals such as cobalt used in electric vehicle batteries and copper for increased electrification, and the sector’s balance sheets are in rude health.

Still, many investors are wary. Concerns include the demand outlook from China, the world’s biggest consumer of metals; the sector’s history of wasting shareholders’ money on mergers and acquisitions that never deliver returns; and a patchy record on environmental, social and governance-related (ESG) issues.

Reminders of the dangers include a disaster in Brazil at a Vale tailings dam in January that killed an estimated 300 people, and a U.S. corruption investigation into Glencore, announced in April.

Refinitiv data shows the Big Four diversified miners - Rio Tinto, BHP, Anglo American and Glencore - trading at a lower forward 12-months price-to-earnings multiple than Britain’s FTSE 100.

“All the large mining companies are trading on high free cash flow yields relative to the broader market when you adjust for capital spending on growth projects,” said Nick Stansbury, head of commodity research at Legal & General Investment Management (LGIM).

“This is indicative of the market’s scepticism about the sustainability of those cash flows, the robustness of capital allocation by management and the sector’s challenges around ESG issues.”

James Clunie, fund manager at Jupiter Fund Management, which holds shares in Rio Tinto and BHP, agreed uncertainty around medium-term commodity prices was a deterrent.

“A whole class of people say ‘I’m out’ because of that uncertainty, and that leads to (the stocks’) undervaluation,” he said.

The same attitude is reflected in the ratings given to the four companies by brokers, with most favoring a fence-sitting “hold” recommendation.

On the flipside, others focus on how the miners have transformed their balance sheets and improved governance.

“Compared to the past, the resources sector is carrying a fraction of the leverage it used to, which should reduce the volatility of the shares,” Evy Hambro, manager of the world’s largest actively managed mining equity fund, BlackRock’s BGF World Mining Fund, told Reuters.

“In addition, the improved capital discipline combined with lower levels of reinvestment has increased the free cash flow available to shareholders and resulted in rising distributions to shareholders.”

Click here to continue reading...

Subscribe to the RSD email list and get the latest resource stock activity directly to your inbox, for free.

Part of the Stock Digest family of websites

Small Cap Stock Digest

MARKET SUMMARY

INDICES

Name Last Change
DOW 27171.90 0.07%
S&P 500 2985.03 0.28%
NASDAQ 8204.14 0.70%
TSX 16518.88 0.20%
TSX-V 593.88 0.00%

Resource Commodities

Name Last Change
Gold 1422.60 0.07%
Silver 16.41 0.55%
Copper 2.72 2.722
Platinum 901.00 0.67%
Oil 56.22 1.05%
Natural Gas 2.31 2.64%
Uranium 25.60 1.08%
Zinc 1.15 0

@RSDigest ON TWITTER