Leading miners likely to reap bumper profits
By William MacNamara 2010-03-31
The world’s top iron ore miners are expected to see a big rise in profits this year after the move to a pricing system that better reflects fundamental demand.
Iron ore was the most profitable commodity last year for Rio Tinto, BHP Billiton and Vale, the world’s three big producers.
That was when the average price was $60 per tonne, according to a benchmark pricing system that is now at an end.
In the first three months of 2010, the average iron ore spot price, which will guide quarterly prices from now on, was $131 per tonne.
If BHP charged an average of $131 per tonne this year, its net earnings would increase by $5.7bn year-on- year, according to its own estimate in February that a $1 per tonne variance would change net profits by $80m for 2010. BHP’s annual group earnings were $6.4bn for its fiscal year ending June 2009.
The new formulas for calculating iron ore prices will vary from company to company, as will the financial impact. But the BHP estimate signals the extraordinary boost in profits that the big producers can expect if rising steel demand keeps the spot price above $100 per tonne.
An industry executive said that the big three producers should each conservatively expect a boost of about $5bn or more this year.
This raises the possibility of special dividends, share buy-backs, or renewed corporate activity.
A windfall would be especially welcome at Rio, the second-biggest global producer, which is still trying to reduce its net debt and compensate for the underperformance of Alcan, its aluminium division.
Rio estimates that a 10 per cent increase from the 2009 iron ore price would lift its underlying earnings by $638m. This implies that a doubling of the price from last year – which is now plausible – would translate to $6.38bn more in underlying earnings for 2010.
Much higher dividends this year are likely for all three producers but especially BHP, which already held $8.3bn in cash at December 2009.
Alex Vanselow, chief financial officer, told the Financial Times in February that BHP’s spending priority was reinvesting in its existing businesses. Share buy-backs were not a preferred use of cash, he said. Perennial expectations that BHP would make a big acquisition were disappointed, he added, because there were few targets that meet BHP’s standards.
Higher profits at Vale, the world’s biggest producer, could help the company fund its $12.9bn spending programme this year.
But higher prices will also lure “marginal”, higher-cost mines into production, chipping away at the incumbents’ market share. Meanwhile, huge new mines – such as Anglo American’s Minas Rio project in Brazil – will start producing from 2012, possibly easing prices, to the relief of steelmakers.
But for the next few years, the big producers are in an excellent position, according to analysts at Liberum Capital in London. Iron ore mining has unusually high barriers to entry. That makes it hard for other producers to catch up in the short term.
英国《金融时报》 威廉•麦克纳马拉 2010-03-31
对全球三大铁矿石生产商——力拓(Rio Tinto)、必和必拓(BHP Billiton)和淡水河谷(Vale)来说，铁矿石是它们去年最赚钱的大宗商品。
但较高的铁矿石价格也将吸引“边缘的”、成本较高的矿山投入生产，从而侵蚀三大生产商现有的市场份额。同时，大型的新矿山，如英美资源集团(Anglo American)的Minas Rio项目，将从2012年开始投产，有可能缓和价格走势，纾缓钢铁生产商的压力。