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Mining
Earnings season is upon us and the big miners begin their half-year and full-year reviews this week with MinRes (ASX:MIN) tomorrow and Northern Star (ASX:NST) on Thursday two of the early movers.
Higher up the food chain the big 3 iron ore miners — kind of like having Lebron, Chris Bosh and Dwyane Wade in your portfolio right now — are set to unveil a $20 billion dividend haul on the back of strong earnings despite falling iron ore prices in the second half of 2021.
That is according to estimates released by Goldman Sachs (GS) analysts Paul Young and Hugo Nicolaci, who predict EBITDA numbers for ASX-listed bulk miners will increase around 45% on the previous first half earnings reports 12 months ago.
Iron ore miners who enjoyed record prices in early 2021 delivering a full year dividend bonanza just six months ago will be joined by resurgent coal miners, base metals and mineral sands stocks in the payout party.
Young and Nicolaci are below consensus on a number of their estimates, saying they believe companies reporting interim results will take a conservative approach due to cost uncertainty and jitters about the outlook for China’s economy.
“Although capital returns should be strong (average payout c. 50% and dividend yield c. 8%), we think those companies that are reporting interim/1H results will likely take a conservative approach to the dividend based on uncertainty on costs and the China outlook, while we see RIO paying out 80% of EPS and the coal sector making the biggest lift to payouts,” they wrote in a note to clients.
“The Dec Q results saw significant operating cost inflation from higher input prices and labour shortages (FX is the only tailwind) and a large build in working capital from higher commodity prices and logistics challenges. Working cap should unwind in the June H but opex inflation will persist into 2023 in our view, and we think capex inflation will likely be the next talking point.
“Overall we think CY22 opex and capex guidance (and even production) may be an area of disappointment for the sector relative to expectations.”
“Growth is back on the agenda for most of the sector (except the coal companies) and we expect increased spend on new mines and decarb projects with updates for key growth options.”
Rio Tinto (ASX:RIO) is expected to be the biggest payer again, though the mining giant delivers its full year results while others are on their first half.
Rio will deliver dividends of US$4.39 per share, GS predicts, around $10 billion in Australian dollar terms. That will come off full year EBITDA of US$38 billion, and NPAT of US$21b, against consensus of US$21.7b.
The only dividend larger than that Rio has ever delivered was its half year dividend, powered by iron ore prices that stormed to record levels in the June half of 2021.
But one of the big focuses will be on Rio’s iron ore cost guidance, with GS expecting those will climb from around US$18/t in 2021 to US$21/t in 2022, well above BHP (ASX:BHP) and FMG (ASX:FMG) cost structures.
BHP is expected to deliver an interim dividend of US$1.27, equivalent to about $9.02b Australian in the first dividend payment to be made since its split corporate structure was collapsed into a single Australia registered company.
Ignoring its soon to be sold petroleum division, GS expects BHP to report underlying EBITDA of US$17.7b, with net debt of US$9.6b.
FMG, which GS rates a sell on uncertainties around its valuation and decarbonisation costs, expects the Andrew Forrest chaired miner to report underlying EBITDA of US$4.9b (down from US$6.6b in FY21 because of lower iron ore prices and increasing grade discounts) and NPAT of US$2.8b.
An interim dividend of US$0.64 per share would deliver a half-year payout of $2.76b, almost $1b of which will go straight into Twiggy’s gold-lined pockets.
Questions about FMG’s green energy division Fortescue Future Industries and its US$3.5b Iron Bridge magnetite mine will again dominate.
“Outlook for the div (future payout), capex, opex, Iron Bridge and Fortescue Future Industries (FFI) projects & spend will be key focus,” Young and Nicolaci said.
“We think decarbonising the Pilbara could cost FMG over US$7bn and requires +US$50/t carbon or a green premia to be NPV positive. FMG has outlined that the Pilbara decarbonisation project/assets would logically sit within FFI.”
Aussie coking coal prices have touched new records at US$445/t, and thermal coal prices are also sky high on account of Indonesia’s gradually softening coal export ban.
That continues a purple patch for once down and out coal companies whose earnings were obliterated by a collapse in demand during the early days of the pandemic.
Whitehaven Coal (ASX:WHC) and Coronado Global Resources (ASX:CRN) are expected to resume dividends for the first time since February 2020 as record prices have reinvigorated their earnings and returned them to likely profitability.
GS expects Whitehaven will deliver $650 million in EBITDA and $360m in NPAT to back a 7c per share interim payout, above consensus of 5.4c.
“WHC recently downgraded FY22 production guidance. We think the focus will be on the outlook for capital returns and that WHC could increase their minimum dividend payout to 50% (from 20%-50%) and look at share buybacks over organic growth considering the company is trading at a discount to our NAV,” Young and Nicolaci said.
Coronado meanwhile is expected to deliver $480m of underlying EBITDA and $150m NPAT (consensus $530m & $200m), with a final dividend of 8.3c (consensus 3.6c).
“We expect 2022 guidance of 18Mt of saleable coal production, unit costs of US$65-70/t, and a big step-up in capex (group US$150mn) mostly at the Curragh open cut mine after a
period of underinvestment,” Young and Nicolaci said.
“We would like to see a switch in the current dividend policy of 60-100% of FCF to a minimum of 50% of NPAT, which we think would be more appropriate for a conservative balance sheet through the cycle.”
Across the diversified, base metals and mineral sands sectors big jumps in interim and full year dividends are also expected.
South32 (ASX:S32) would increase its half year divided 6 times over if it pays out the US$0.086 expected by Goldman, or 7 times if it pays out consensus US$0.099 per share.
OZ Minerals (ASX:OZL) would double its 2021 payout from 17c to 38c after a year of record high copper prices.
Meanwhile Iluka Resources (ASX:ILU), which has enjoyed rising zircon and rutile prices through 2021, could increase its payout between 6.5 to 8 times on the 2c it issued 12 months ago, with GS expecting a final dividend of 12.9c against a consensus of 15.9c.
GS expects Iluka will report underlying EBITDA of $640m and NPAT of $300m for full year 2021, up from $423m and $151m respectively for 2020.
Mining
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