Where Next For Glencore Plc, Anglo American Plc & BHP Billiton Plc?

My thoughts on Glencore Plc (LON: GLEN), Anglo American Plc (LON: AAL) & BHP Billiton Plc (LON:BLT) during the months ahead.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

As if there wasn’t enough chatter for investors to digest already, I thought I’d take this morning to toss my own thoughts onto the bonfire of opinion that has engulfed the mining sector.

Glencore Plc

The prospect of zero real earnings growth, no dividend and a great deal of price uncertainty all mean that Glencore (LSE: GLEN) would probably pose a challenge to the most accomplished of financial modellers. Each of these things make valuation difficult.

Although commodity price swings may continue to be a source of volatility for the shares, my own view is that it will be developments on the balance sheet that ultimately determine the fate of Glencore. Leverage and debt reduction targets will be the primary focus of investors from here onward.

While management places net debt at $29bn and has pledged to reduce this to the “low 20s of billions” over the medium term, a more conservative approach to calculating net debt could push this figure above $40bn.

Clearly, it’s a big job the board faces, which means that further disappointments or bouts of share price weakness can’t be ruled out.

Anglo American

In December, Anglo American (LSE: AAL) became the latest miner to suspend its dividend, after announcing a ‘radical restructuring’ programme at its investor day.

Although the restructuring will see Anglo hiving off assets and reducing headcount by more than 50%, some have worried that it doesn’t go far enough, prompting speculation about the possibility of a rights issue.

To me, Anglo’s problem is not one that a rights issue would really solve because its balance sheet isn’t an issue to the extent that it is elsewhere in the sector. With gearing at 35% and debt/equity at 0.58 times, there are many more ‘stretched’ balance sheets across the mining space.

However, if Anglo’s profitability is to be ensured, the cost base will still need cutting drastically, even if commodity prices were to stabilise at current levels. But with the right amount of reorganisation, I get the impression that management could probably turn things around here within a reasonable period of time.

BHP Billiton Plc

Last week’s decision to impair its US shale assets, although necessary, has been controversial for BHP (LSE: BLT) investors given that it has spent over $20bn attempting to buy a presence in the market over the last decade.

My view on the company is similar to that of Anglo in that it doesn’t have the same balance sheet issues as the more beleaguered miners. This suggests that, after taking a more critical look at its portfolio, the group should be able to see out the current downturn.

Given its scale and balance sheet, it may even benefit from the downturn eventually because as other companies become more distressed, their assets will become cheaper.

On the downside, management is yet to take the plunge when it comes to dividends. Consensus estimates still have it paying more in dividends than it earns this year and next. Until management bites this particular bullet, it will remain a downside risk to the shares and detract from efforts to bolster the balance sheet.

If I had to make a call here I would say that February’s results will probably see the dividend scrapped for the foreseeable future, along with the announcement of BHP’s own ‘action plan’ on costs and capital expenditure.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Happy parents playing with little kids riding in box
Investing Articles

A 9.7%-yielding FTSE 100 dividend gem that could create generational wealth

A sizeable investment pot that can be passed onto the next generation could be built with much smaller investments over…

Read more »

Investing Articles

Up 31%, do Lloyds shares have more to give?

Shares in major FTSE 100 bank Lloyds are on a charge. But what could be in store for the stock?…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Time to sell this FTSE 100 underperformer, says Goldman Sachs

Analysts at one investment bank have a ‘sell’ rating on FTSE 100 stock Diageo. But could a short-term weakness in…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Down 5%, Glencore’s share price looks a serious bargain to me now

Glencore’s share price looks undervalued to me, supported by strong earnings growth prospects and the potential resumption of extra shareholder…

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

I’d invest £6,580 in this FTSE 250 REIT for £500 passive income

This FTSE 250 renewable energy enterprise is on track to become a Dividend Aristocrat! Here’s how I’d invest to earn…

Read more »

Investing Articles

Buying 1,000 of some dividend shares today unlocks £45 in weekly passive income!

These shares are among the biggest dividend payers in the FTSE 100. Should investors be buying them now to earn…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

If I’d put £5k in index funds 5 years ago, here’s what I’d have now

Investing in index funds is an excellent way to grow wealth with minimal effort. But how much money can investors…

Read more »

Investing Articles

10.2% yield! 1 of the top income stocks to buy in July?

A 10% yield's pretty rare, but this firm's been growing shareholder payouts for nine years! Does that make it one…

Read more »