Global mining companies are set to unveil their biggest drops in profit in more than a decade and are clearing the decks with multibillion-dollar writedowns on poorly performing assets as they bring in new chief executives.
A sharp drop in commodity prices has driven down half-year profits by 40-50 per cent from a year ago for the top five mining firms, forcing them to shelve expansion projects, slash costs, and sell assets to boost returns.
For the top three, BHP Billiton Ltd., Brazil's Vale SA and Rio Tinto Group, iron ore earnings are likely to cushion losses in coal, aluminum and nickel for the period, which could be the low-water mark for profits.
Chief executives are being punished for splurging cash in the boom years on projects and acquisitions instead of rewarding shareholders more generously, and investors are calling for Rio and BHP to rethink their dividend policies.
One of the 10 largest shareholders in BHP and Rio's Australian stock said his fund had been pressing both to pay out more of their profit to shareholders. He predicted Rio Tinto, anxious to win investor goodwill after a $14-billion (U.S.) writedown, would move in that direction.
"The logic of not paying out a higher dividend to shareholders is so the company can use the funds effectively … for a desirable return on investment," said Ross Barker, managing director of Australian Foundation Investment Co.
"The company (Rio) hasn't shown a lot of skill at that in recent years, so perhaps the pendulum might tip a bit more towards shareholders."
Rio sacked CEO Tom Albanese last month after announcing it was slashing the value of its aluminum business and Mozambique coal assets, the latest in a string of writedowns on pricey acquisitions.
He is not the only one on the way out. Anglo American CEO Cynthia Carroll hands over to Australian Mark Cutifani in April, while Xstrata PLC is about to lose CEO Mick Davis as Glencore International PLC takes the company over, and BHP has said it is searching for a successor to Marius Kloppers.
Rio's new chief Sam Walsh makes his first outing at the company's results presentation on Feb. 14, kicking off the July-December reporting season for the big five.
Rio Tinto, Vale and Anglo American PLC have already dished out their bad news, with Vale having flagged a $1.3-billion charge on its stake in Norwegian aluminum producer Norsk Hydro, and Anglo taking a $4-billion charge on its Minas Rio iron ore project in Brazil.
BHP Billiton could follow suit, with analysts expecting writedowns of between $2-billion and $3-billion on its aluminum assets, hit like the rest of the industry by rising power costs and a sharp rise in China's aluminum output.
Feb. 14 – Rio Tinto
Rio Tinto is expected to report a 49-per-cent plunge in second-half profit to $3.93-billion, excluding the big writedowns, according to a company-compiled consensus. Full-year profit is expected to dive 42 per cent to $9.08-billion.
Iron ore is expected to make up close to 90 per cent of earnings, with losses expected in aluminum and diamonds.
Investors are eager to hear from Mr. Walsh on how soon the company can cast off the Pacific Aluminium and diamonds businesses, both on the block for more than a year, and how it will deal with the loss-making aluminum business.
"The biggest challenge at the moment is what happens with Alcan, the aluminum business," said Tim Barker, a portfolio manager at BT Investment Management, a Rio shareholder.
Analysts are also looking for the company to spell out exactly how it plans to meet its target, set out last November, to slash $5-billion of costs by the end of 2014.
Feb. 15 - Anglo American
Anglo is releasing its last annual results under Carroll. Her successor, bullion producer AngloGold Ashanti boss Cutifani, joins in April.
Few surprises are expected after the company said last month it would write $4-billion off its flagship Minas Rio asset and announced its platinum arm slid into the red.
Operating profit of $6.3-billion is expected for 2012, according to Thomson Reuters I/B/E/S, more than 40 per cent down on 2011. The company's own consensus forecast is $6.1-billion.
South African strikes, particularly in platinum, have been a large part of Anglo's troubles; its Anglo American Platinum unit posted its first annual loss earlier this month and said there could be more labour disruption ahead as it pushes through a major overhaul.
Analysts and investors will be looking for an update on efforts to pull platinum into profit, as Anglo consults with unions and government over its plans to shut two mines and sell one, which could cost 14,000 jobs.
They will also focus on the group's copper assets, including Collahuasi, the world's No. 3 copper mine, which is seeking to turn the corner after a tough 2012.
Feb. 20 – BHP Billiton
Top global miner BHP is tipped to report a 43-per-cent slide in attributable profit before one-offs to $5.69-billion for the first half of its financial year, hit by a slide in iron ore, coal and copper prices.
Cost-cutting is top of the agenda, with some investors saying BHP should be as specific as Rio Tinto in setting a target, which it has so far avoided.
"They should perhaps put some targets in there that the market can grapple with and decide how serious the company is and what the degree of urgency is," said Tim Schroeders, a portfolio manager at Pengana Capital.
The company has already sold off its diamonds business, and investors want to know if its aluminum and nickel assets may be next on the block, with some expecting writedowns totalling around $3-billion on the businesses.
Feb. 27 – Vale
Vale, the world's top iron ore producer, is expected to post a 44-per-cent drop in fourth-quarter net income to 2.16-billion reais ($1.09-billion U.S.), which would be the smallest quarterly profit at the Rio de Janeiro-based group in nearly three years.
Two of the 12 analysts surveyed by Reuters said they expected a loss in the quarter.
Vale has been hit by a decline in the price of steel-making iron ore and writedowns of underperforming mines, as part of a plan to slash costs and refocus new investments on iron ore, which has been responsible for nearly 90 per cent of profit.
Net sales, or sales minus sales taxes, are expected to fall 23 per cent, while core earnings, or earnings before interest, taxes, depreciation and amortization (EBITDA), are expected to fall 38 per cent.
March 5 – Xstrata-Glencore
Xstrata and commodities trader Glencore will release results separately but on the same day next month, as their long-awaited tie-up is still awaiting its final regulatory clearance, from China's regulators.
Both release production numbers on Feb. 12.
Investors will be focused on statements from Glencore's management team, their plans for Xstrata's assets and the group's broader growth plans.
Glencore, unique in the sector with its model of executive ownership, has long touted its focus on spending discipline and is expected to cut back the combined group's growth spending, shelving or selling less attractive, or higher risk, projects in Latin America, the Philippines, Papua New Guinea and Australia.
The incoming Glencore team could also clear the decks with writedowns on some Xstrata assets including, analysts say, its Koniambo nickel mine in New Caledonia.