In line with guidance basically. Not great figures but the only bad bit, which will have already been in SP, was following:
"Mined copper production of 478.1 thousand tonnes was nine per cent lower than 2016 due primarily to the impact of a 43 day strike at Escondida in the first quarter. Production was in line with revised guidance."
I did hear on Bloomberg TV this morning that iron ore prices are likely to fall in 2018. The story was that some of China's iron ore mines were shut down for the winter to reduce pollution. It is anticipated that they will start up again in the spring reducing demand for iron ore imports. They are also shutting down their old, polluting, steel mills, which will remove some overcapacity and again reduce demand for iron ore.
Sorry, I haven't looked into BHP in as much detail, but my analysis of RIO was just based on the publicly available data, nothing proprietary.
I think that the only chance a PI has of riding the market is to conduct a level headed analysis of the value of a companies business model, take into account the trends that the commentators are talking about, and avoid the short term herd mentality of brokers who are just thinking of the next 5 minutes and who are afraid to divert from the group think as it makes them vulnerable.
Warren Buffet famously says that he only invests in companies that he understands, and that have a moat around their product.
Well the big IO miners have a pretty simple business model IMO, and while they are presently price takers rather than makers, having the lowest production cost is some sort of moat. What is interesting is to ponder whether the Chinese environmental push shifts the power balance in favour of the big 3 miners. If the attractiveness of the low grade marginal producers has been damaged by the Chinese restrictions, then the market could be much more on edge than previously imagined, and in this scenario, the big 3 have a real monopoly between them, much more so than OPEC at its height. In addition for heavy infrastructure there isn't any alternative material on the horizon (aluminium bridges anyone?) Listen to Robert Rennie explain how the apparent glut of steel is actually not what it seems, much of the increase is simply the replacement of illegal low quality product that was never counted, by more legitimate supplies.
All the big miners (Rio, Anglo, BHP) have been doing well since before Christmas. I'm up 18-23% on my initial forays into this sector in October. My trading approach is to buy more once the SP has gone up 5%, so I've now bought 3 tranches of each one. Originally I was buying for the high yield, but who's to complain!
Been struggling with this for some time - should I add. Seems as if I'm not the only one struggling with it.
Certainly, China is moving towards using higher grade IO in their attempts to curb polution (less energy required), but countering that is, as said, miners increasing production of HGs - including Vale. Thankfully, they're further from China than BLT and RIO. It's a long haul from Brazil to Shanghai, or wherever. Twice took phosphates from Morocco to China, and ran out of domestic water on the way - bucket a day per person. I digress.
But there's so much going on atm: Copper is expected to go into deficit in a couple of years, and Mongolia should come into some sort of production around 2020 - maybe. Good timing. That's going to be a real game-changer (copper). I can just see all those juicy car-charging cables being sought after by unpleasant types.
Anyway, there's a nice dividend to be going on with. It might not make it in 2019, but you never know cash-flow might provide a SD to ease the temporary pain. Personally, I prefer this to BLT, of which I have some, purely as BLT has some 20% in oil/gas, and I'm way over invested in oilies right now - and have been for some time.
Thanks. I'm not up on the CBB so no view I'm afraid.
What the short term will bring is anybodies guess, I've given up trying to forecast the market as simply too hard IMO. What I do see is the underlying fundamental value in Rio (and BHP) which barring any 'Black Swan' events, and if the demand and supply hold up as I think they might, should be reflected in the sp at some point. In the meantime, dividends are your friend and counsel to remain patient!
All Imo DYOR of course.
I've learned that focussing on value rather than trying to trade the short term moves works much better for me at least.
Good to see your posts and your bullish forecasts. What's your view on the recent report back from China Beige Book on evidence CBB but seem like a credible outfit with a good track record on reporting?
Rio has moved nearly 16% in just 3 weeks and I wasn't expecting this move so quickly. Massive jump on last trading day of the year, wondering if it was some window dressing . The trend is definitely up but wonder if there will be a pullback before venturing above £40. 200 day MA at about £34 - tested it 3 weeks ago and then bounced off it .
I think the other thing is that there is growing evidence of a structural shift in the IO market.
Rio and BHP have been saying it for some time, but I guess the market has been considering this as them talking up their own book.
But listen to Robert Rennie from Westpac, who seems to have some decent credentials behind him.
If the pollution curbs over winter are seen as successful in that they reduce pollution while still allowing mills to function by using largely high grade ore to maintain reasonable total output, then it could become a regular and predictable feature of the already very seasonal market.
This would have a number of effects. It would make low grade domestic chinese producers deeply uneconomic, and make life very difficult for the marginal low grade producers (e.g. FMG) Maybe this is why FMG are now taking about increasing their target grade. OF course increasing their grade will reduce their total output, increase costs and reduce mine life. All of this increases the cost curve for IO. In addition the planned winter slowdown would have an effect of magnifying the normal rush to re-stock that normally happens early in the new year in China and this would also keep steel margins high and therefore encourage mills to use high grade to increase output.
All of this potentially points to a structural change favouring a long term higher price for high grade IO even at current total demand, and with a likely reduction in total IO production largely because low grade and high cost miners are forced out.
If we get to Jan/Feb with still a reasonably steady IOP, and historically low steel inventories then we could be in for a massive squeeze on the IOP when Chinese production ramps up again. Ignore the port inventories because they are not reflective of the availability of high grade ore which is what the mills want/ need.
I'm confident enough of this premise to sit tight, with the comfort of a likely 6% dividend to cushion any short term volatility. Difficult to see where else to park funds with this risk/ benefit ratio and a reasonable dividend stream (perhaps Lloyds if the Brexit talks don't fall apart, or HSBC? Would like to get back into house builders but they never fall far enough for me to have an attractive entry point. I sold out of Apple after a 40% gain and don't want to exit Rio too soon!)
Yes I realise that markets are forward looking while dividends are historic, and furthermore the forecasting of div's is highly speculative.
But it seems to me that a lot of downside is priced in to the current sp (i.e. a fall in IOP, currency etc.) while there is at least a reasonable indiction that there has been a structural change in the IO market favouring higher grades. As such I wonder if most of the risk is actually now to the upside, while at the same time the current SP is supported by at least a medium term prospect of very healthy 5%+ dividends and a return of 2-2.7B from the asset disposals.
It seems to me the current sp is factoring in an IOP of around $55-$60
I must be fairly unusual to have this sort of asymmetric risk in a high yield (albeit cyclical) stock?
That gives UE for the whole year of 7.8B, i.e. 55% increase. At a 70% Div payout that would be 207P
4-Traders is showing median forecast Net of 7 680 (Unadjusted) for EPS 3.59 and div of 201.
DL EPS 359.8 and div of 207.5p
That much is broadly in line with your div numbers, but I wouldn't think single year dividend tells us much about value. Looking at the longer term
4T EPS 18/19 318p / 279p Div 179p / 166p
DL 18 EPS 310p Div 182p
Now I realize that forecasts 1/2 years out is like throwing darts at a moving board and for the miners you have to do it with the lights out so who knows, but there is fair risk of China slowing or other factors cutting earnings. What the market thinks is fair value of RIO will depend on noises out of China, Central banks and the tweets from the White House.
4300p would be great but I'd be very surprised if we saw that any time soon. It hit above 4500p at the height of the supercycle ~2011, of course the company and the market are now very different.
RIO has had a great run since the dark days of early 2016 and I have gradually sliced down to about half my holding, the rest are a hold for me for now.
"A spectacular performance by miners in 2016 was always going to be a hard act to follow, with the FTSE 350 Mining Index more than doubling in value. But at this late stage of 2017, commodities-focused investors can have few major complaints about ..."
Thinking of selling all RIO and Glencore this week.
Well a couple of things -- the shares of both have recovered to 5 year highs or closer to anyhow.
Quite a few are pointing out that the commodity prices don't stack up against real changes in demand and that the future demand looks dampened.
"""""Meanwhile, global supply growth has continued to outstrip global demand growth across many commodities, including iron ore and copper.""""
"""He said fundamental demand for commodities in China is driven by credit growth, with the economy needing to borrow five units of debt for every one extra unit of growth created, according to the International Monetary Fund.""""
"""He said investing in the commodity companies is akin to investing in continued Chinese growth, as credit growth in the country has "leaked into" commodity prices, representing a "giant mis-allocation of capital.""""
The only saving grace for these companies is the debt is not as bad as it was a few years back, but with a halving of commodity prices again, the level of debt won't be a factor in the value of sales which will plummet.
Sitting on a 45% gain on RIO having recovered from a 50%+ loss
Glencore has been an even bigger swing back from the throes of demise.
Games -- Been here before, only to see share prices like Humpty Dumpty fall all the way back down again.
Yes Laidlaw was laid low at Centrica. No connection with his public customer base. He was challenged on TV to explain why retail gas prices were going up when wholesale gas prices were going down and he rambled on about intricate futures contacts, which were completely lost in the social housing estates of England. He looked haggard when he resigned.
"SYDNEY, Oct 18 (Reuters) - The U.S. Securities and Exchange Commission on Tuesday charged mining company Rio Tinto Plc and two of its former top executives with fraud, saying they inflated the value of coal assets in Mozambique and concealed critical information while tapping the market for billions of dollars.
In a lawsuit filed in U.S. federal court in Manhattan, the SEC said Rio Tinto, former Chief Executive Officer Thomas Albanese, and former Chief Financial Officer Guy Elliott failed to follow accounting standards and company policies to accurately value and record the assets.
The Mozambican coal business was acquired for $3.7 billion in 2011 from Riversdale Mining and sold a few years later for $50 million.
2007 - India's Tata Steel signs a joint venture with Australia's Riversdale Mining to develop coal projects in Mozambique. 2008 Thermal coal futures prices rise above $200 per tonne. 2010 Riversdale gets green light to build $800 million coal mine in the country's northwest. Riversdale has predicted that the Benga project will produce some of the lowest-cost coking coal in the world. It later turns out that Mozambiques coal is costlier than competing supplies, especially from neighbouring South Africa. 2010 - Mozambiques transport ministry says that Mozambique will use the Zambezi river to enable inland coal assets to get to a port, which has yet to be fully developed. 2011 After a price crash following the global financial crisis, coal prices soar back as high as $130 per tonne amid expectations that demand from India and China will result in an undersupplied market for decades to come. 2011 Rio Tinto gets Mozambique coal assets as part of $3.7 billion acquisition of Riversdale Mining. 2011 - Rio Tinto's chief executive for energy Doug Ritchie describes the Mozambique operations as the "greatest undeveloped seaborne coking coal region in the world. 2012 - Rio issues a $3 billion bond and an around 1.8 billion euro bond with a 500 million British pound tranche. Some 95 percent of the sterling bonds go to UK investors including fund managers, insurers and pension funds.
2012 - Mozambique's government says it will not let Rio Tinto use the Zambezi River to transport coal to the Indian Ocean for export. That means the coal can only get to ports via unreliable railways, which also lack the capacity to handle the coal. The ports are also not sufficiently developed to handle large-scale coal exports. 2013 Coal prices drop back below $100 per tonne. 2013 - Rio Tinto writes off about $3.5 billion on the operation. 2013 - Albanese resigns at request of board. 2014 Rio Tinto sells Mozambique coal assets for $50 million. 2014 - Albanese named chief executive of Indian mining company Vedanta Resources Plc, where he serves until September 2017.
2017 - The U.S. Securities and Exchange Commission charges Rio Tinto, along with Albanese and Elliott, with fraud. 2017 - Albanese issues statement saying there is no truth in any of the charges. Elliot will vigorously contest the charges, according to a spokeswoman for the former executive. Rio Tinto says it will defend itself vigorously against the SEC's allegations. (Reporting by James Regan and Henning Gloystein)"
Presumably the exposure for RIO is any potential fine, possibly a bigger issue for Albanese and Co. It's interesting that spending $3.7b in 2011 and selling it for $50m a couple of years later is not an issue, provided it is correctly accounted for.
As always seems to be the case when fraud or breach of regulations occurs, the shareholders who suffered from this incompetence are recompensed by being fined on top of losses
incurred. Maybe they are deemed complicit by buying the shares and egging on management, who knows. UK have had a go, now US lining up for a bite, who's next?.
Rio Tinto and two former senior executives were hit with US fraud charges, and the miner with a UK penalty, on Tuesday for allegedly trying to hide a multibillion-dollar business failure by inflating the value of coal assets in Mozambique.
In a civil complaint filed in federal court in New York, the Securities and Exchange Commission said that Rio, Tom Albanese, its former chief executive, and Guy Elliott, a former chief financial officer, had ignored proper accounting standards and misled investors in their valuation of coal deposits that the company had purchased for $3.7bn and later sold for just $50m.
"One of the biggest risks investors face is poor timing - buying into a stockmarket or a sector that has reached a peak. But those who hold their nerve, as opposed to panicking and cashing in their chips, should in theory ride out the losses and ..."
A good week so far for miners, in particular Rio, when we saw previous weekly declines relative to weakening iron ore. the share price has risen every day this week so far.
I would welcome any views out there on whether you feel anything has changed and whether we now see a drive towards £40. I guess the big test is whether we see a continuation of iron ore spot price decline when China opens up next week. Or does it bounce from here?
Personally, I cannot see justifiable reason why the iron ore spot price would suddenly turn higher given the tightening measures China are putting forward in the forthcoming winter period to combat pollution control etc.
I am trying to assess whether Rio is currently overbought relative to market conditions etc but struggling to get to an answer - perhaps given that I'm a Rio holder and conscious my view is tainted from being purely objective.
I'd choose RIO over GLEN every time. If you look at RIO's iron ore mines they've got the biggest and best quality uns in the world .... and nice and close to China where all the demand is. They've got a damn fine Copper biznay with a nice mix of safe and sensible (USA), and risky but attractive (Mongolia and Indonesia) and they've got another damn fine Aluminium biznay (Alcan) though it's a goddamn shame they paid so much for it ... but that's years ago now.
I wouldn't pay much heed to the difference in margins 'cos GLEN's are (presumably) low because of their huge low margin trading biznay but, every time I trawl through GLEN's mines, a lot of 'em are in far off places of which we know little. For example they've got a nickel mine in New Caledonia which is complete pants. And their E&P oil business isn't worth a cup of warm spit.
Good luck with whatever you decide to do. All I need to do on the rare occasions when I think of buying GLEN is to look at a pic of Glasenberg and axe mesen "Do I want this feller to be in charge of my tiny wad?" The feeling then goes away.
Contemplating selling my remaining holding in Glencore and either keeping my current holding in RIO, or adding to it.
In RIO's favour are it's higher operating margins close to 28% compared to Glen at 2%
RIO's ROCE -- difficult to measure I know with changing commodity prices but on a stab in the air basis RIO looks close to 10% in current climate and Glencore (I haven't the foggiest to be honest).
With RIO one assumes a fairly steady as she goes management - with Ivan and Glencore I don't think one can ever predict what he will do next.
RIO is mostly concentrated in Iron Ore which could be a disadvantage in another downturn in construction - Glencore is more diverse but also geographically very fragmented into dangerous and unpredictable regimes I assume.
The share prices have both recovered dramatically from the low's :-
RIO from 15XX to 34XX -- 120%
Glencore probably twice that as it was considered bust 2 years back.
Have they both had their day in the sun and it's over the top and down the hill from here perhaps? Both companies earnings are expected to tail off next year - RIO more than Glen perhaps.
On Dividend -- RIO is already back up to over 5% where Glen is stil 2-3% but expected to rise significantly next year -- but next year is a long way off in commodity prices innit?
On borrowings -- RIO is sitting on £17BN against a pre-tax £6.7Bn last year and Glen was £23Bn last year against a loss -- but looking forward this is improving dramatically for this year at least.
Brokers seem to pencil in a 15% upside on both companies.
Any views on this lot before I lean on the red and or green buttons?
"still he's missed out on the growth so far hasn't he?"
Yeah, this is the point, innit though, m8? Sounds as if ol' Woodentop is just evincing sour grapes!
My continuing faith in RIO was bolstered by summat that I read somewhere yesterday, namely that the Chinees have taken some sorta action which means that the premium which RIO can charge for its high quality iron ore is likely to rise vis a vis the discount which the likes of Fortescue can charge for its carp quality ore. I hadn't realised that the stuff came in different qualities before - assumed it was all same same never mind, but apparently not. One learns something every day. Lumps and Fines rang a vague bell, but it's even more complex than that, apparently.
The latest buy back is another good sign that Jean-Sebastien has learned the lesson about not splashing the cash on damnfool M&A whenever commodity prices rise a bit.
RIO is approaching the saintly status of ULVR in my shrunken wad ... high praise indeed.
"""Furthermore, we would argue that this behaviour has introduced more risk to certain parts of the market. To demonstrate this, lets look at what has happened in the UK mining sector a sector to which the fund is not exposed over the last eighteen months. The sector had a great run in 2016 and has enjoyed another strong rally over the summer months. For example, Rio Tintos share price started 2016 at £19.80. Since then it has risen almost 90% to end August at £37.47. Mining companies like Rio Tinto have benefited from a significant increase in the price of the commodities that they produce. We have missed out on those gains, in part because we did not anticipate the rally in commodity prices, but primarily because we do not believe the increase in commodity prices that we have seen is fundamentally justified.
On the face of it, mining company shares may not look expensively valued, because earnings, dividend and cash flow forecasts have all increased broadly in tandem with share prices. But the question we always return to is, what if those commodity price increases are not sustainable?. We have written before about the amount of financial speculation that currently takes place in commodity markets in China the scale is enormous and alarming.
>>> I suppose this part is quite telling regarding the amount of trading relative to the actual usage of the stuff :-
""""""For example, the amount of iron ore volume that is traded in China every day now regularly exceeds the countrys entire annual output of that commodity. Meanwhile, global supply growth has continued to outstrip global demand growth across many commodities, including iron ore and copper. This fundamental dynamic is naturally more likely to result in commodity price declines, rather than increases, which suggests that something other than fundamentals has been driving price behaviour across the commodity spectrum."""""""
""""""Obviously, the China growth story has been central to the investment case for commodities and commodity producers for a long time. Growth has slowed in recent years but policymakers have prioritised economic stability, with annual growth of 6.5% currently targeted, seemingly at any cost. Growth has become increasingly dependent on credit, with the IMF estimating that the credit intensity of the Chinese economy is now close to 5x in other words, for every 1 unit of incremental output, the Chinese economy now needs nearly 5 units of debt. This worries us Chinese credit growth far outstrips that of the US and other western economies in the build-up to the global financial crisis. Indeed, it is widely acknowledged that China already has a substantial bad debt problem and policymakers have been increasingly innovative in their attempts to stave off their own banking crisis. They have so far managed to delay that conclusion but are running out of options to continue to do so. There is growing evidence too, that policymakers are becoming more interested in the quality of growth rather than the quantity of it all of this points to a very different Chinese economic performance in the years ahead, than the one that financial markets have become accustomed to."""""
>>>> Woody may have a point, but still he's missed out on the growth so far hasn't he?
Games -- Much rather invest in Circassia, or Provident Financial, or Capita, or the AA, or Centrica or Rolls Royce or Allied Minds or Game Group or .......
RIO yesterday announced a $2.5 billion buyback of Ltd and PLC shares as their means of returning the proceeds of the Oz Coal and Allied sale to shareholders (or rather to ex-shareholders LOL).
This is what they said about the RIO Ltd buyback (which incidentally is a lot smaller than the PLC buyback):
"Rio Tinto Limited will invite eligible shareholders in Australia or New Zealand to tender Rio Tinto Limited shares at discounts of between 8 and 14 per cent".
This will be an off-market transaction, whereas the PLC transaction, which will be executed in 2018, will be on-market ... and therefore at no discount to the market price.
If they can persuade sellers to sell at a discount to the market price in Oz and Na Zillun, why can they not try to pull the same stunt in PLC markets, eh? Why pay "full" market price in Blighty?
It looks as if the reason may have something to do (as it so often does) with tax, but it still seems strange to me to adopt what looks like a more expensive route for the PLC shares than that which is being pursued for the Ltd shares.
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