File picture: Reuters

Johannesburg - BHP Billiton and Rio Tinto’s strategy of controlling costs has paid off with their share prices falling the least compared with peers in an oversupplied market with rapidly declining commodity prices.

Troye Brady, an analyst at Noah Capital Markets, said last week that BHP Billiton had the best control over costs, as well as lower cost projects, compared with its peers.

“Having said that if the sentiment toward resources is negative, this does not bode well for commodity share prices,” Brady said.

BHP Billiton shares have fallen 17.72 percent, while Rio Tinto shares have shed 22.83 percent for the year to date on Friday on the London Stock Exchange. Anglo American shares are 38.96 percent lower and Glencore shares have plunged 45.22 percent.

Strategy

On the JSE, where Rio Tinto is not listed, BHP Billiton’s share price has been the most resilient followed by Anglo, while Glencore is the laggard.

BHP Billiton share prices for the year to date on the JSE are down 6.44 percent, Anglo American has dropped by 31.07 percent, while Glencore’s stock is down by 38.03 percent.

The market has a negative perception on commodity stocks as a result of the subdued environment caused by slowing demand in China.

Share price performance is linked to the differences in the major producers’ asset portfolios that set them apart. BHP’s major differentiator are its oil and iron ore businesses, while Rio Tinto is more about iron ore, aluminium and coal. Anglo American leans more towards gold, platinum, diamonds and copper, while Glencore has a commodity trading arm that spans metals, energy and agricultural products, and a mining unit with interests mainly in base metals and coal.

John Meyer, an analyst at SP Angel in London, said last week that Rio Tinto and BHP Billion had worked hard at owning the biggest and the best mines in the world.

“It’s a strategy which is hard to fault and one which should ensure their survival through the toughest of times. Anglo American shares this ambition and has some great assets, like De Beers, but is hamstrung by legacy assets in South Africa and has struggled to keep pace as management are distracted by local issues,” Meyer said.

He added that tough times in gold and platinum were not good for Anglo, but prices were rising again and margins should grow as the rand continued to fall.

Glencore might carry greater risk on the downside because of generally higher production costs at its mines and its high level of gross debt, Meyer said. “We like its broad mix of base and speciality metal assets combined with coal, oil and wheat.”

However, he added: “We are wary of Glencore’s $17 billion (R220bn) of ‘readily marketable inventories’, but assuming the group retains its investment grade rating, then Glencore looks like the best stock for upside potential.”

Stephen Meintjes, the head of research at Imara SP Reid, said Glencore was well positioned because it did not produce iron ore, a major steel ingredient that had seen its price fall sharply.

Anglo has the biggest exposure to South Africa where it has grappled with labour unrest.

BUSINESS REPORT