Mixed outlook for trio of mining giants

Expectations for the future were mixed as BG Group (BG.) upgraded its guidance, while Rio Tinto (RIO) took a more cautionary stance. Finally, Anglo American (AAL) updated its investors ahead of its full-year results on 17 February.

BG Group

Shares in BG Group marched ahead as the company raised its liquefied natural gas (LNG) profit guidance for 2012 by over 30% to between $2.6 and $2.8 billion (£1.6 and £1.7 million).

"The outlook for global gas and LNG demand is strong," stressed chief executive Sir Frank Chapman. "Not only is our LNG supply set to exceed our 2015 target of 20 million tonnes per annum (mtpa), but we believe that a BG Group supply portfolio of 30 mtpa by 2020 is now within reach," he confirmed.

The upgrade came as BG reported fourth-quarter earnings of $1.47 billion - well ahead of the consensus estimate of about $1.2 billion.

By division, exploration and production (E&P) reported year-on-year increase of 21% driven by higher realised prices; LNG reported a 51% rise in operating profit; while those in the transmission and distribution division fell by more than 60%.

Looking ahead, the company has started the year with a production run rate of some 650,000 barrels of oil equivalent per day (boepd), with the rate expected to increase to 750,000 boepd by the end of the year.

Additionally, the company is optimistic that "combining our solid base with the contributions from Australia and Brazil" will deliver production of more than one million boepd by 2015 and around 1.4 million boepd by 2020.

"Overall, BG Group has published a pleasing set of fourth-quarter results and it has given further extensive guidance on its excellent growth prospects out to 2020," stated Tony Shepard, analyst at Charles Stanley. However, he noted that the company was trading on a forward earnings multiple of 16 times, a "significant premium" to other large oil and gas groups. He thus had a 'hold' recommendation on the stock.

Brokers at Killik & Co disagreed. "Although the shares are trading at a premium to the oil majors, we believe this is justified by the above-average growth and the value tied up in assets which are expected to generate strong returns beyond the forecast period. The results were very reassuring and underpin our positive stance on the company," they said.

Rio Tinto

Iron ore producer Rio Tinto, on the other hand, took a more cautionary stance as it published its 2011 full-year results.

"Uncertainty in the financial markets, particularly around the euro, together with elevated price volatility will continue into 2012. This leads us to remain cautious about near-term prospects," said chairman Jan du Plessis.

However, he stressed that the medium to long-term picture for metals and minerals remained "very positive" as strong demand growth from emerging markets continued.

The company recorded underlying earnings of $15.5 billion, an 11% increase on 2010 driven by an "impressive performance" in the iron ore operations and higher prices.

However, net earnings came in 59% below 2010 at $5.8 billion as the company took an impairment charge relating to its aluminium business. The company cited "stronger currencies in some regions" and "high raw material costs" as reasons for writing off $8.9 billion worth of aluminium assets in 2011.

As a result of the impairments, chief executive Tom Albanese and chief financial officer Guy Elliott have notified the remuneration committee that they did not wish to be considered for an annual bonus.

Additionally, Albanese confirmed that "the industry-wide phenomenon of high cost inflation" had continued in a number of mining hotspots in which the company operated. "These pressures, together with the strengthening of the Australian and Canadian currencies, escalating raw material prices, the impacts of adverse weather conditions and lower grades squeezed our margins in 2011," he added.

However, he reassured investors that the company was already accelerating a number of cost and productivity initiatives to control those costs.

Finally, the company confirmed that its $7 billion share buyback programme was on track for completion by end of the first quarter.

Shares in the company nudged down on the news.

Anglo American

Last but not least, Anglo American notified investors that it would report underlying earnings of $1,462 million in respect of Kumba Iron Ore of US$1,462 million for the year ended 31 December 2011.

Anglo American will publish its full-year results on 17 February.

For an understanding of what to look for when considering exposure to the sector, read: Analysing... Miners.