FTSE 350 Review: Can mining stocks repeat the 2010s superboom?

The big miners are taking a breath. In sports terms they would be in the rebuilding phase, with Glencore (GLEN) counting its Champions League-style winnings from the coal price boom of 2022-23 and thinking about how best to play the energy transition, while Rio Tinto (RIO) and (off-index) BHP (BHP) are getting the best out of their veterans while putting serious resources into the future. Anglo American (AAL), though, looks as though it might be relegated. 

But let’s blow the whistle on the tortured metaphor. Last year ended with an uptick in iron ore prices, setting up Rio and BHP for a boost to full-year and interim profits, respectively. Metallurgical coal prices are also up, helping BHP. The iron ore price strength – it had climbed to over $140 (£111) a tonne by the start of this year – was a surprise because of the generally downbeat market views on China. Levels of industrial activity there determine pricing. 

Those with an eye on income will see the impact of the wider market slowdown in the dividend payments and buybacks. The big miners don’t offer the kind of yields seen in the other extractive industries (once energy majors’ buybacks are factored in, at least) but hit new shareholder return records in 2022 thanks to the pandemic rebound. Even Anglo American, whose share price has collapsed in the past year, has seen its yield fall, as payouts have dropped by half in the same period. 

The industry is aiming to use the energy transition to stage a repeat of the 2010s ‘superboom’. The investment in new copper operations and expansion of existing mines are indicators of this bullishness, although the smooth upward trajectory has been challenged in the past year and electric vehicle (EV) growth has slowed. Investment bank Bernstein is still a believer in demand for the red metal shooting up. “Turning bearish on copper as we face hiccups in EV sales or renewables would risk missing the forest for the trees,” said the bank’s mining and metals analysts in January. That forest is the broad demand growth for the metal – renewables and EV demand will climb from 2.4mn tonnes in 2022 to 6.8mn tonnes in 2030, they estimate.

Glencore has opted for a calculated approach to feeding this market. The company’s acquisition strategy includes a quick-to-start brownfield option rather than more expensive greenfield projects.

“We'll bring that to market as we see the market needs those tonnes,” chief executive Gary Nagle said last year. “I think the world has started to recognise the shortage of copper coming in the next few years, and this will be one of the first projects that's able to feed into that demand. But before we bring this on, we certainly want to see higher prices.” 

Canny diversification has also sent Rio Tinto into lithium and less polluting types of aluminium production, while BHP is spending billions on a fertiliser mine in Canada. The two big Australian operators will rely on iron ore for at least a few more decades, however. Rio Tinto will soon start pouring billions into the Simandou mine in Guinea, while BHP will continue expanding in the Pilbara. Earnings are likely to tilt slightly away from the steel ingredient over time. 

This year we’ll be watching with interest the progress on Simandou, as well as Glencore’s plans to split its operations. This won’t happen until its debt load has fallen, but any uptick in thermal coal prices could bring this forward by sending cash flow up. Glencore now has heightened exposure to coal through the Teck Resources (CN:TECKB) deal that brought it majority ownership of the Canadian company’s non-metals operations.