Mining companies are expected to announce record profits
According to analysis done by Bloomberg, the commodities boom that has been sparked by efforts to emerge from the COVID-19 pandemic could result in record profits for the world’s largest mining companies along with high dividend payouts.
Bloomberg reported that the top five mining companies (BHP, Rio Tinto, Glencore Plc, Anglo American Plc and Vale SA) might have earned a combined $85 billion in the first half of 2021. Rio Tinto Group was expected to announce $22 billion in profits which would be close to its profits for all of 2020.
As the world looks to bounce back from the pandemic recovery efforts and infrastructure plans have sparked a demand for a number of commodities including steel, iron ore, copper and aluminum, driving prices sharply higher and sending inflation pressures rippling through the global economy. Demand for critical minerals like cobalt, lithium and nickel have also reached high levels.
And while previous rallies lured the industry into ambitious investment plans to build and expand mines, many producers this time appear content to return their profit windfalls to investors. The two biggest — Rio and larger rival BHP Group — have already been funneling record returns to shareholders.
Each of the group of five majors expected to report their biggest-ever earnings for the six months through June, according to average analyst estimates compiled by Bloomberg. Rio could pay out 60 percent of its underlying earnings, according to some analyst estimates.
Iron ore has been a big driver of profit for the largest producers. The world’s biggest commodity after oil hit a record in the first-half, and has spent the last three months hovering around $200 a ton, a level not seen in a decade. Steel and copper prices both set fresh records this year, thermal coal has also soared, and even diamonds have had a resurgence.
Some prices have retreated recently amid concerns about rising Covid-19 cases and as China moves to curb rising costs. Yet commodity prices across the board remain historically high for now.
U.S. copper miner Freeport-McMoRan Inc. gave a hint of what to expect when it reported last week. The company has wiped out $5 billion of debt in the last 12 months, hitting its target months ahead of schedule, and setting the stage for an increase in shareholder returns.
For the iron ore miners such as Vale, BHP and Rio, it promises to be even better. Demand for the steelmaking ingredient, especially from China, is rampant and supply is constrained. China, which accounts for about half of global steel production, is making a record amount of the metal, while iron ore supply has never recovered from two dam disasters in Brazil.
Of course, the mining companies are not immune to inflation themselves — iron ore operations in Australia are grappling with a sharp rise in labor costs due to worker shortages. And governments in resource-rich countries, especially in Latin America, are also looking at the industry as a source of extra revenue after the commodities rally.
For now though, the miners are cashing in.