Energy Freeport-McMoRan Inc (FCX), BHP BHP Billiton Limited (BHP), Vale SA (VALE), Rio Tinto plc (RIO), Teck Resources Ltd (TCK): The Balance Sheet Clash Continues

Freeport-McMoRan Inc (FCX), BHP BHP Billiton Limited (BHP), Vale SA (VALE), Rio Tinto plc (RIO), Teck Resources Ltd (TCK): The Balance Sheet Clash Continues

Published By News Desk at October 11, 2016 07:29 am

Recently, Deutsche Bank’s research wing released a detailed report on the global mining industry as the research analysts reviewed leverage positions of different iron ore and copper producers. In this regard, Vale SA (NYSE:VALE), Anglo American, and Freeport-McMoRan are among leveraged companies, whereas Vale leads the rest. As these companies have opted for assets disposal, yet lack of global demand and lower basic material prices are likely to keep pressurizing the companies above. On the contrary, Rio Tinto plc (NYSE:RIO) is standing at the lowest leverage, whereas BHP Billiton may reduce its primary leverage by a CY18 end.

The research firm also concluded that as of now, only Fortescue Metals Group, Anglo American, and Rio Tinto are deemed to have a positive outlook by the credit rating agencies, S&P and Moody’s. Freeport-McMoRan Inc. (NYSE:FCX) started CY16 with a net debt of $20.2 billion. The company’s primary goal remained to divest its assets, reducing the debt to around $10 billion by CY17. The following significant transactions which included $2.8 billion worth sale of Tenke, $2 billion worth sale of Gulf of Mexico Oil & Gas properties, $1 billion worth interest sale of Morenci mine and lately announced $1.5 billion of an equity offering, and the company is likely to achieve its target.

Moreover, Grasberg mine is also likely to make a significant contribution in CY17. By year-end FY16, BHP Billiton Limited (ADR) (NYSE:BHP) had a net debt of $26.1 billion. Despite this relatively high level of gearing, the company’s balance sheet is strong regarding liquidity and BHP has an A credit rating. It is pertinent to note that BHP is the only company under review which has a negative outlook for its credit from the S&P. As such, BHP has been clear that the priority in its capital allocation framework after spending maintenance capital expenditure is to use free cash flow to reduce debt. After that, it will pay a minimum 50% of earnings as a dividend.

Rio Tinto, with the growth investment and increased cash returns in CY17, is likely to be among top global miners to deleverage itself. At the end of June 2016, the company paid off $12.9 billion net debt. Market pundits believed the company would manage to reduce its net debt by $3.2 billion in 2HCY16 alone, to end the year by cumulative $9.7 billion.

During 2QCY16, Teck Resources Ltd. (USA) (NYSE:TCK) pushed out debt maturities, replacing $1.25 billion of notes having a due date of 2017-19 with $1.25 billion notes which mature in 2021-24. As per the latest available report, the company has $5.9 billion of net debt. Research analysts anticipated it to decrease to around $3.97 billion by CY17. Furthermore, they also believed current met coal prices contain the potential for further improvement. This notion marks capital expenditure of $1 billion in CY17, due to Fort Hills which is due to be completed by 4QFY17.