Sonali Paul and Clara Ferreira-Marques Melbourne and London
Global mining houses are set to unveil their biggest profit declines in more than a decade and are clearing the decks with multibillion-dollar write-downs on poorly performing assets as new chief executives come in.
A sharp drop in commodity prices has driven down half-year profits by up to 50 percent 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, Vale and Rio Tinto, iron ore earnings are likely to cushion losses in coal, aluminium and nickel for the six months to December last year.
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 Tinto and BHP Billiton to rethink dividend policies.
One of the 10 largest shareholders in BHP Billiton and Rio Tinto’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 (R124bn) write-down, would move in that direction.
Rio Tinto sacked chief executive Tom Albanese last month after saying it was slashing the value of its aluminium business and Mozambique coal assets.
He is not alone. Anglo American chief executive Cynthia Carroll hands over to Australian Mark Cutifani in April, while Xstrata is about to lose chief executive Mick Davis as Glencore takes over, and BHP Billiton is searching for a successor to Marius Kloppers.
Rio Tinto’s new chief, Sam Walsh, makes his first outing at the company’s results presentation on Thursday.
Rio Tinto, Vale and Anglo American have already dished out their bad news, with Vale having flagged a $1.3bn charge on its stake in Norsk Hydro, and Anglo taking a $4bn charge on its Minas-Rio iron ore project in Brazil.
BHP Billiton could follow, with analysts expecting writedowns of between $2bn and $3bn on its aluminium assets.
On Thursday, Rio Tinto is expected to report a 49 percent plunge in second-half profit to $3.93bn, excluding the big write-downs, according to a company-compiled consensus. Full-year profit is expected to dive 42 percent to $9.08bn.
Investors are eager to hear from Walsh on how soon the company can cast off the Pacific Aluminium and diamonds businesses and how it will deal with the loss-making aluminium business.
Analysts also want the company to spell out exactly how it plans to meet its target, set out last November, to slash $5bn of costs by the end of 2014.
On Friday, Anglo is releasing its last annual results under Cynthia Carroll.
Few surprises are expected after the company said last month that it would write $4bn off its flagship Minas-Rio asset and announced its platinum arm slid into the red.
Next week BHP Billiton is tipped to report a 43 percent slide in attributable profit before one-off charges to $5.69bn for its first half. – Reuters