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magazineWaning copper production could be good for miners
The mining sector has been hit hard by the recent volatility in commodity prices amid weaker Chinese economic data and fears the US Federal Reserve is set to start tapering its support for the world’s largest economy earlier than forecast.
The FTSE 350 Industrial Metals & Mining sector is still among the top performing year-to-date with a 25.5% advance for the year-to-date according to SharePad data compared with the FTSE All-Share’s much more modest 11.4% rise.
In the seven days to 23 August though the grouping was down 5% against a UK market which is broadly flat.
However, recent numbers from Antofagasta (ANTO) revealed a glint of positive news, particularly for those companies with copper exposure.
Antofagasta, heavily focused on the metal, downgraded its production guidance thanks to extreme weather conditions in Chile, the world’s top producing nation, as it endured the worst of what now adds up to 12 years of drought conditions.
More widely analysts expect a drop in recent levels of output which were lifted by temporary initiatives aimed at maintaining volumes despite Covid-related disruption.
Investment bank Jefferies comments: ‘These measures included deferring maintenance and waste stripping, processing stockpiled ore so that finished copper volumes exceeded mined production, deviating from mine plans, and “high grading” in some cases. Now, as ore grades are naturally falling and companies are catching up on maintenance, volumes are in decline, as we had expected.’
Of the UK-listed mining contingent, Jefferies reckons both Antofagasta and Glencore (GLEN) can benefit as what it believes to be transitory issues affecting the US and Chinese economies ease. Longer term copper is a critical component of the kit and infrastructure behind electric vehicles and renewables.
What next after BHP plans end to dual structure
It may be one of the largest companies on the UK market but BHP’s (BHP) days in the FTSE 100 are numbered after it announced plans to end its DLC (dual listed company) structure.
A new set-up with a primary listing in Australia will mean it no longer qualifies for membership of the index with the plan attracting criticism from fund managers who in some cases will no longer be able to invest in the stock. Rio Tinto (RIO) is another company with a DLC.
As Bank of America observes: ‘A DLC is a structure by which two independent companies agree to operate as a combined entity without a formal merger (typically accomplished by acquisition of one vehicle by the other).
‘The companies agree to a unified management structure and the businesses are run on a unified basis. In the case of BHP and Rio Tinto, shares in both ends of the DLC rank pari passu (on an equal footing) in terms of rights to cash flows, dividends and votes.’
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