Miners Dig Deep

Published in Company Comment on 11 February 2010

Overall, it's been a good week for the giants of the mining world.

Hot on the heels of start of the oil and gas reporting season, this week has seen some awaited results from a number of mining companies.

Monday saw Randgold Resources (LSE: RRS) and Xstrata (LSE: XTA) both reporting full-year results. Both impressed the market.

Gold boost

Randgold, which specialises in gold mining and exploration in Africa, reported a "record year", with a 79% increase in profits for the year, and a 185% increase for the quarter against the same quarter last year. The recent rush of investors putting their money into shiny things helped, with gold sales in the fourth quarter rising by 34% over the previous quarter, and by 78% over the fourth quarter last year.

Investors should also be buoyed by the news that the company's schedule for its Kibali project on the Democratic Republic of Congo has been brought forward, with the target date for first production moved to January 2014 -- a full year ahead of previous plans.

Randgold will pay an annual dividend of 17c per share (approx 10.6p), on 18th March. That's not a huge dividend yield (though mining stocks aren't really income investments), but it's more than the market was expecting.

Nice recovery

Meanwhile, Xstrata, whose business is in mining coal and metals, and producing various industrial alloys, saw an expected fall in demand in the first half of the year, as the economic downturn led to what the company described as "unprecedented destocking".

But as economic stimulus initiatives took effect, the resulting increased demand for commodities in the later part of the year helped counter that. Coupled with cost savings of $500m (a reduction in operating costs of 5%), that helped Xstrata to finish the year with EBITDA of $7bn. That has enabled the company to resume paying dividends, and and an 8c (5p) per share final dividend is on the cards.

These results brought a bit of short-term respite to both companies' sliding share prices, with Randgold's blipping back up over the £44 level (though still a way down from its recent high of over £50). Xstrata's price, manwhile, poked back above the £10 mark, but again is still down from the £12 the shares commanded at the beginning of the year.

China and India

On Wednesday, the oil, gas and minerals giant BHP Billiton (LSE: BLT) released half-year results, for the six months ending 31 December. Net profit more than doubled to $6.1bn (from $2.6bn in the first half of the previous year), and earnings per share rose to 110c, from 47c the year before. 

These figures comfortably beat the analysts' consensus of $5.2bn for the period, although excluding exceptional income does bring the profit figure down to $5.7bn.

This first-half performance was largely on the back of demand from China and India, which could well prove fickle in the future, and so the company is cautious in its outlook, saying:

"Despite this positive momentum, we remain cautious about the speed and strength of the global economic recovery across the developed world. It appears that stimulus measures that supported the recovery have not fully addressed structural issues such as weak labour markets and excess production capacity in developed economies."

Trouble in China

And on Thursday, Rio Tinto (LSE: RIO), currently having a bit of trouble in China, announced full-year results for 2009 which showed underlying earnings of $6.3bn. That was down 39% on a year ago, but considering the harsh economic conditions facing the company's wide-ranging mining and minerals business, many will be satisfied with that.

Underlying earnings per share (EPS) came in at 357c (223p), which is 46% down on last year. But after taking into account the disposals made during the year (Rio Tinto divested itself of $5.7bn worth of business operations during the year, from a planned total of $7.2bn), EPS from continuing operations actually rose 5%, to 302c (189p).

A dividend of 45c (28p) per share will be paid, which is down 60% on last year, but only a little below market expectations.

More from Alan Oscroft

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