By Alex MacDonald and Robb M. Stewart
LONDON--The five largest mining companies listed in the U.K. are
forecast to announce lower earnings this week due to a fall in
commodity prices and multi-billion dollar write downs that have
resulted in a change of chief executives at several of the large
diversified miners.
Rio Tinto PLC (RIO), Anglo American PLC (AAL.LN), Xstrata PLC
(XTA.LN), and Glencore International PLC (GLEN.LN) are forecast to
report a 6% to 40% drop in full-year earnings before interest,
taxes, depreciation and amortization ,or Ebtida, as higher volumes
fail to offset lower achieved sales prices. BHP Billiton Ltd. (BHP)
is due to announce first half underlying Ebitda that is 26% lower
on year, according to FactSet data.
Analysts have pointed to stronger macro-economic indicators
around the world as evidence that the worst may be over and that
better days are to come.
But the large diversified miners are still likely to take a
cautious approach to investment, particularly mergers and
acquisitions, after ill-timed acquisitions in the last four to five
years have led to write downs among many of the large diversified
miners, and even to some CEO departures.
Rio Tinto, which is set to be the first to announce its results
on Feb. 14, announced last month a $14 billion write-down that led
the company to replace CEO Tom Albanese with Sam Walsh, the former
head of Rio's iron ore division.
Meanwhile, Anglo American, which is due to announce results on
Feb. 15, announced last month a $4 billion write down on its
flagship Brazilian iron ore project. The current CEO Cynthia
Carroll announced her resignation as a result of shareholder
pressure over the project. She will be replaced by AngloGold
Ashanti Ltd's (ANG.JO) Mark Cutifani in April.
"With the departure of Rio Tinto and Anglo American CEOs we
suggest strategies will focus more on organic growth and away from
M&A [mergers and acquisitions], with a large emphasis on cost
cutting and shareholder returns," said Citigroup analysts in a
note.
Analysts at Liberum believe that the new management at many of
the diversified miners will take the opportunity to kitchen-sink
any bad news in the upcoming results including any further write
downs if needed.
BHP Billiton, which is due to report on Feb. 20 and is searching
for a successor to CEO Marius Kloppers, might announce write downs
on its nickel and aluminum assets while Glencore and Xstrata, which
are both due to announce their results on March 5, are likely to
announce a revamped capital expenditure plan and cost cutting
measures should they complete their multi-billion dollar merger by
then.
Analysts expect the large diversified miners to come under
pressure to return cash to shareholders given their relatively
healthy balance sheets and push to reduce capital expenditure.
"In a rangebound commodity price environment...The key
deliverables are volume growth, restructuring, deleveraging,
capex/cost cuts and dividend surprises," said Barclays in a
note.
-Write to Alex MacDonald at alex.macdonald@dowjones.com and Robb
M. Stewart at robb.stewart@dowjones.com
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