Looming price falls may force big miners to speed up asset sales
Three of the world’s top five miners will need to step up asset sales in the second half of this year to meet a $14 billion full-year target as they race to cut debt, with a recent rally in commodities prices seen as short-lived.
The world’s biggest miners predicted doom and gloom for 2016 six months ago when they booked their worst earnings in more than a decade, slashed dividends and put an array of copper, coal, iron ore and other assets on the block.
Glencore (GLEN.L), Anglo American (AAL.L) and Vale (VALE5.SA), have so far raised $5.4 billion from asset sales, less than half their target, delaying efforts to reduce debt and boost their battered credit ratings.
Investors will be looking to see how much pressure miners feel on the pace of sales when they report results in coming weeks, led off by Anglo American and Vale on Thursday.
“Higher commodity prices take away some pressure on companies to sell, but the situation remains tense,” said David Finger, an analyst at Allianz Global Investors in London.
Asset sales lost steam amid a first-half rebound in commodity prices fueled by China’s efforts to shore up growth. Iron ore and coal prices rallied around 30 percent and copper prices rose around 7 percent, easing the sense of urgency for sellers while bidders waited for the rallies to fizzle.
But bankers, analysts and investors expect the tide to turn in the second half. Even miners see prices falling as iron ore, coal and copper markets remain oversupplied.
NO FIRE SALES
Debt rating agencies see Anglo American and Vale in the worst shape, with ratings well into junk status, although Anglo American won a “positive outlook” on its Ba3 rating from Moody’s after fetching a higher-than-expected $1.5 billion for its Brazilian niobium and phosphate business in April.
Anglo has set a target of at least $3 billion in asset sales this year and is widely expected to reach that with the pending sale of two coveted metallurgical coal mines in Australia, possibly to BHP Billiton. (BHP.AX)(BLT.L)
Vale, which hopes to sell up to $5 billion worth of assets this year, may come under more pressure as so far it has only fetched $269 million from the sale of three iron ore carriers.
“If they wanted to sell $10 billion in assets quickly they definitely could, but they don’t want to sell it at all costs and now that prices have recovered they probably don’t have to do it all costs at this point in time,” said UBS analyst Andreas Bokkenheuser in New York.
Glencore, whose debt is rated at one notch above junk, has been the most successful in selling assets, including the $3.125 billion sale of nearly half its agriculture business to two Canadian funds.
It is on track to meet its $4 billion to $5 billion asset sales target this year, with bankers and industry sources saying it has received several bids for its coal rail business in Australia, GRail, which could fetch more than $1 billion.
Meanwhile, the pending sale of its Cobar and Lomas Bayas copper mines in Australia and Chile has gone quiet, bankers told Reuters.
BHP and Rio Tinto (RIO.AX)(RIO.L) are seen well placed to buy assets, with interest in copper, but both have been surprised at the high prices that copper assets have fetched so far.
Moody’s and S&P analysts expect commodities prices to fall in the second half of this year, but said the big miners could extend asset sales beyond their 2016 target to ensure they secure top dollar.
“They are not facing a liquidity crisis, which means they’re not in a position where they have to fire-sale their assets,” said Melbourne-based S&P analyst May Zhong.