Mining is one of the most out-of favour sectors in the market. Low metals prices and worries about global growth — and demand from China, in particular — have combined to whack the shares of mining companies.
Glencore isn’t a common-or-garden miner. It is also a commodities trader, which, management reckons, gives it a unique finger on the pulse. However, this hasn’t helped the performance of the shares, which closed on Wednesday at a record low of 122.8p — down 77% from the flotation price of 530p in 2011.
Some City experts believe Glencore will need to raise fresh equity. The analysts are also questioning — as they are with many miners — whether the current dividend is sustainable. However, in Glencore’s half-year results last month, management spoke defiantly of the company’s “strong and flexible balance sheet”, and — by way of “reflecting our confidence” — maintained the interim dividend, giving a whopping running yield of 9.6%.
Directors aren’t just talking the talk. Chief financial officer Steven Kalmin immediately bought a cool one million shares at 172.88p a share. The following day, non-executive director John Mack bought 50,000 shares at 162.85p. And, two days ago, senior non-exec Peter Grauer joined in the buying spree, with a purchase of 118,000 shares at 134.5p a pop. All together, these three directors have invested getting on for £2m.
If you’re convinced by management’s confidence in the business, you can pick up the shares at a lower price today than the directors were happy to buy at.
BHP Billiton’s directors were no less keen than Glencore’s to defy the dividend sceptics when the company released its annual results last week. The Board lifted the year’s dividend by 2% (giving a running yield of 7.8%), and said: “Our commitment to the progressive dividend is unchanged”. In the analyst briefing, the company added that it was “resolute” in its commitment, pointing out that this commitment “has withstood many previous cycles”, and suggesting that the business can generate the necessary cash flow (more important than paper earnings) to support the dividend.
Non-executive director Malcolm Brinded lost little time in splashing out £217,200 to buy 20,000 shares at an average price of 1,086p a share. This was his first purchase since his appointment in April 2014, at which time he owned 12,000 shares. You’ll be paying around the same price as Mr Brinded, if you’re buying BHP Billiton shares today.
Last month, Rio Tinto announced a 12% increase in its interim dividend, giving a running yield of 6.5%. We can’t read too much into the first-half increase, because it’s Rio’s established policy to set the interim payout at half the total of the prior year. Nevertheless, directors can always change a dividend policy, and it’s encouraging that Rio has maintained past practice, as well as reaffirming its “progressive” policy.
Three directors have bought since the half-year results, although one director’s purchase was a “non-discretionary transaction”. The other two buys — by non-execs Megan Clark and Michael L’Estrange, who both joined the company last year — weren’t exactly huge either, amounting to less than £50,000. Dr Clark bought 1,000 shares at AUD$47.90 (increasing her holding to 2,715 shares), while Mr L’Estrange picked up 700 shares at $50.93 (increasing his holding to 1,003 shares). You’ll have to pay a little more than the directors if you want to pick up Rio’s shares today.
Based on directors putting their money where their mouths are, it’s a case of the higher the yield, the more confident the directors are that their companies’ shares offer value, with Glencore (9.6% yield) being the most heavily supported (almost £2m of buys).
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