FTSE 350: Miners flick switch to growth

But 2020 could see fundamental demand improvements for base metals and iron ore and coking coal. Canadian bank BMO’s analysts are excited enough to forecast a loosening of the purse strings and a return the more profligate days. “We... think that the era of shareholders demanding discipline and returns will abate in exchange for growth in the second half of the year,” the bank said. “The only problem is that the stocks are generally ex-growth, which potentially means M&A and more competitive tension in valuation multiples.” 

An early sign of this expansionary phase could be Anglo American’s (AAL) interest in Sirius Minerals (SXX). The potential £386m offer for the Woodsmith project – which needs around $3bn (£2.3bn) to get up and running – shows a new spending inclination from chief executive Mark Cutifani. Granted, this is nowhere near the rabid purchasing that took place during the early 2010s mining boom – marked by Tom Albanese’s stint at Rio Tinto (RIO) and the Riversdale debacle in Mozambique – and BMO said there would be a difference between the “high-quality names” and “leveraged plays”.

One thing that won’t be added to portfolios is thermal coal. The only major miner not hinting at asset sales, Glencore (GLEN), has pledged to cap production around current levels. BHP (BHP) and Anglo American have reportedly floated the sales of their existing thermal assets. The world’s largest fund manager, BlackRock, helped harden attitudes toward coal in the first weeks of 2020 through removing companies that get more than 25 per cent of their revenue from thermal coal from its active funds. While it's unlikely a major miner would double down on coal, there are those in the industry who back it as a short-term play. Macquarie Bank sees a growing market driven by Asia and supply cuts overcoming the closure of coal power plants in Europe to drive prices up. 

On the climate reporting front, BHP is currently leading the charge by promising to work out its customers’ emissions (scope 3 emissions) and help them cut down. BlackRock chief executive Larry Fink said moves like this would help companies in the long term. “Companies and countries that champion transparency and demonstrate their responsiveness to stakeholders, by contrast, will attract investment more effectively, including higher-quality, more patient capital,” he said. While mining coal will only get more unpopular, copper miners say they are part of the solution, as copper is needed for renewable energy and electric vehicle infrastructure. 

The red metal’s price barely moved in 2019, owing to poor demand linked to the trade war, but there are rays of light coming in now. The detente between the US and China with the ‘phase one’ agreement signed could spur on industrial demand, and stockpiles are low. 

Liberum analyst Ben Davis has also already picked a turnaround in copper’s fortunes. “The data coming out of China implies that the period of destocking is over and end use demand trends are encouraging,” he said. There is some disagreement between Mr Davis and CRU analyst Hamish Sampson over mine conditions – with the Liberum analyst forecasting smooth sailing and Mr Sampson seeing production halts from labour negotiations in Chile – but labour issue-linked price rises in Chile have failed to materialise in the past. The country is in a turbulent spot, however, and protests hit Antofagasta (ANTO) production last year.