Major UK miners to post results amid big corporate changes

Another pair of FTSE 100 UK mining giants will update the market this week following recent blow-out earnings from bellwether UK miners Rio Tinto and Randgold Resources. On top of this week’s earnings from resources conglomerates BHP Billiton, Glencore and the smaller copper miner, Kazakhmys, the companies have been trailing wide-ranging corporate actions, preparing investors for the possibility of a billion-dollar asset spin-off (in  BHP’s case) share buybacks and even a restructuring.

Anglo-Australian BHP Billiton will report full-year preliminary earnings during the Australian Stock Exchange session on Tuesday 19th August, which will be late on Monday evening in London.Glencore, the Swiss-based commodities trader and mining conglomerate with its largest listing on the FTSE 100 index, will release its half-yearly report on Wednesday 20th August.Half-year results for Kazakhmys, the FTSE 250-listed copper miner with assets concentrated in Kazakhstan, are set for Thursday 21st August.

Just as important as the miners’ financial results, the week is also expected to bring news of key decisions from each of the firms after several years of poor returns brought about by collapsing commodities prices forcing several of the industry’s key players to embark on strategic reviews.

BHP Billiton to get the lion’s share of attention

BHP Billiton confirmed late last week it would probably conduct a spin-off of aluminium, manganese and nickel assets into a separate listed company, shares of which would then be offered to existing BHP shareholders. The world’s largest resources company in market-capitalisation terms said a decision to de-merge the unwanted assets could be made as early as next week.

Media reports suggested a potential release of $14bn worth of value, although BHP made no comment regarding the timing of an eventual de-merger, its likely value, or whether the coal assets would be included. It also declined to say how the dual-listed nature of its current market capitalisation would impact the distribution of news shares to be issued in the event of a spin-off. It did however stress its preference for a “de-merger of a selection of assets” that could “generate stronger growth in cash flow and a superior return on investment”.

Additionally, it emerged on Monday BHP might also announce the return of some surplus capital to investors at the same time as its results, with estimates putting the cash-back figure as high as $3bn or even more. The miner, like many of its sector peers is seen as more capable of returning excess cash than at any time for years amid an industry-wide resurgence in free cash flows and more modest capital expenditure plans than in prior years. None of the mining groups reporting this week have confirmed they will conduct new cash-return programmes.

As for BHP’s earnings, the company is expected to report net profit at $13.86bn for the year to June, a 27% rise from the same period the year before. Iron ore operations are likely to have provided the bulk of the boost for BHP’s 2014 income, given the company already said it beat its own guidance for full-year iron ore output, with a record 225m tonnes.

Glencore seen with copper-plated profit rise

Whilst BHP is likely to get the lion’s share of market attention, this week, the market will certainly not ignore first-half earnings from Glencore Plc. Importantly, Glencore recently completed the sale of Las Bambas copper mine in Peru, for which it received $6bn.

Whilst there are hopes Glencore could also return at least some of these proceeds to investors, the group made a statement last month that was not categorical:  “Any surplus capital, subject to maintaining an efficient balance sheet. . . will be returned to shareholders, within an appropriate timeframe and structure”. Prospects for an announcement of a new buyback from Glencore on Wednesday are seen as rather lower than for BHP. Even so investors may be partially mollified if Glencore meets expectations for half-yearly revenues to be $124.8B, a rise of more than 11% compared to H1 last year.

Glencore said last week it produced 13% more copper in its first half, in line with market forecasts, boosted by output growth at its African and South American mines. It typically makes half of its profit from copper.

Kazakhmys results may be eclipsed by restructuring news

The smallest miner set to report this week is Kazakhmys Plc., listed in the FTSE 250 index of companies with lower capitalisations than FTSE 100 firms. Early in the month, the firm, whose assets are concentrated in the Kazakhstan, announced a reduced cathode copper output of 3.5% year-on-year for the first half of 2014 to 139,200 tonnes. The single-commodity focused group was particularly squeezed during the commodity price collapse following the credit crunch and sovereign debt crises beginning in the latter half of the last decade. Kazakhmys’ weakening copper production is likely to have had an impact on its results.

Revenues are forecast to have fallen almost 19% to $1.276bn, whilst net income may have tumbled 35% to $23m. It’s likely the copper producer’s results, whilst important, are not the main focus for its investors right now, after shareholders last week approved a restructuring programme in which Kazakhmys will split most of its mines off into a company headed by its largest shareholder.

Kazakhmys said it would retain five mines producing high-grade copper, with low-sustaining capital expenditure and a cash generative profile. Mature assets in Zhezkazgan and central regions of Kazakhstan would be transferred to Cuprum Holding, a private company owned by Vladimir Kim, Kazakhmys’ former chairman and largest shareholder, and Eduard Ogay, chief executive of Kazakhmys.

The London-listed mining group, will be renamed KAZ Minerals, once the split is finalised (currently completion is expected by the end of 2014) and will receive no compensation from the split entity. Rather Kazakhmys said it would fund the new company with $150m as well as $80m from its capital expenditure budget and $10m in tax credits. Net debt would rise after the disposals but fall in the longer term, Kazakhmys said.

The stock closed 0.2% lower on Monday at 303p, having risen more than 19% in the last 3 months, although it is still about 66% lower than its 5-year ago level. BHP Billiton stock, on the other hand, has risen close to 44% since 2009 and 2.8% over the last month to a 0.8%-higher close for the day at 2065.99p. Glencore stock closed 1.5% firmer at 364.36p.