It seems as if the mining industry is about to turn a corner. After years of lacklustre results and poor returns, it is now widely believed that both BHP Billiton (LSE: BLT) (NYSE: BHP.US) and Glencore (LSE: GLEN)
will announce huge investor payouts this week.
It seems as if the mining industry is about to turn a corner. After years of lacklustre results and poor returns, it is now widely believed that both BHP Billiton (LSE: BLT) (NYSE: BHP.US) and Glencore (LSE: GLEN) will announce huge investor payouts this week.
The prospects of cash payouts come as a result of asset sales by the two mining behemoths. For example, Glencore recently received$7bn from the sale of its Las Bambas copper mine being built in Peru. The company was forced to sell the Las Bambas project, or other assets by September 2014, in order to win China’s approval for its takeover of miner Xstrata last year. Las Bambas has been acquired by Chinese firm MMG.
As a result of this huge cash infusion, many analysts now believe that Glencore will issue a special dividend to shareholders. Indeed, Glencore’s management has previously stated that:
“Any surplus capital, subject to maintaining an efficient balance sheet…will be returned to shareholders, within an appropriate timeframe and structure,”
It is expected that the company will unveil cash return plans on the 20th of August, in line with the release of its half-year results, rather than having to wait until its annual results in February.
Up and away
Meanwhile, BHP Billiton’s investors could be in for two surprises when the company reported first-half results later this week.
Indeed, it is expected that BHP’s management will announce that it has set aside $3bn for a new share buyback and is planning a multi-billion dollar spin off of unwanted assets.
In particular, BHP has been considering a spin of unwanted assets for some time now, which could mean a lump sum cash return, or other type of distribution after the divestment. Some figures suggest that the new entity, a miner with nickel, manganese and aluminium operations, spanning Australia, South Africa and Colombia, could be worth as much as $12bn.
This hefty payout would add to BHP’s existing $5.2bn raised from asset sales since the beginning of 2012.
What’s more, these non-core nickel, manganese and aluminium operations only contribute around 10% of BHP’s total earnings. So, BHP’s earnings are only likely to fall around 10% as a result of the slimming down, while the group will free up around $12bn to return to investors, pay down debt or acquire other businesses to boost growth.
These rumours of cash returns are a change from mining industry trends of the past. Miners have spent billions over the past decade rapidly expanding, drawing criticism from analysts who have accused miners of neglecting shareholder interests.
However, it now seems that management teams within the mining industry are starting to put shareholder interests first. So, perhaps it could be time to add some resource stocks to your portfolio.
Nevertheless, the business of mining can make you rich but it can also make you poor. That's why the best investors build a portfolio with a combination of both risky mining companies and reliable dividend paying stocks, allowing you to sleep soundly at night.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool has recommended shares in Glencore. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.