Investors are flocking to mining stocks as they hunt for assets that can provide strong income streams at a time of persistently high inflation.
London-listed shares of BHP, the world’s largest natural resources company, and rival Anglo American both hit record highs earlier this week, boosted by rising commodity prices and prospects for cash. big when the industry’s reporting season begins next week.
Deutsche Bank expects five major miners, a group that includes Glencore, Rio Tinto and Vale, to declare dividends and cash profits of $24 billion, with the prospect of more coming in Last year.
Those payouts are becoming increasingly attractive to equity investors, who are struggling to find the positive real yield, the return they can get when rising inflation is taken into account. .
With UK consumer price inflation running at 5.4%, the mining sector is one of the few that can keep up. A basket of London-listed miners offers a potential yield of 5.9%, according to analysts at Berenberg.
“Clearly in an environment of higher inflation, one of the biggest challenges in the market for any investor is getting real income opportunities,” said Jonathan Stubbs, analyst at Berenberg. .
Susannah Streeter, senior market and investment analyst at Hargreaves Lansdown, the UK’s largest investment platform, said interest in mining stocks like Rio has grown since late January when Retail investors look for companies that are willing to be “more flexible with returns above environmental rates”.
The company has been among the 10 most-bought stocks on the Hargreaves Lansdown platform since early 2022. During that period, shares in Rio were up more than 17% as of late Thursday.
Mining has emerged as one of the biggest sources of income for UK investors in recent years, accounting for almost a quarter of total dividend payments in 2021, up from 4% in 2016.
In part, this reflects the fact that other sectors including banking, travel and entertainment, have been forced to cut dividends because of the coronavirus pandemic.
But it also underscores the broader transformation of the mining industry under a new generation of leaders who have slashed debt, avoided investing in large projects and switched to interlinked dividend policies. relative to the amount of cash they generate.
That’s a far cry from the situation the sector discovered six years ago, when China drove down commodity prices that brought some of the industry’s biggest names to the brink of collapse.
Management teams are currently focused on cashing in and are reluctant to buy cash into large new mines, to the extent that the pipeline of new projects is running at dangerously low levels – as well. such as the demand for electrochemical metals including copper has the ability to take off, because of the energy transition.
Deutsche Bank calculates five major companies could return $48 billion to investors this year, with a potential $60 billion settlement if commodity prices hold at current levels.
However, the mining sector is not without risks. Cash generation can be constrained by rising costs due to higher oil and freight prices and workers demanding wage increases – and the industry also needs investment to grow. remove its activities.
