Ground Breakers: Bulk miners will pay big dividends this earnings season
Earnings season is upon us and the big miners begin their semi-annual and annual reviews this week with MinRes (ASX:MIN) tomorrow and Northern Star (ASX:NST) Thursday, two early movers.
Further up the food chain, the Big 3 iron ore miners – kind of like having Lebron, Chris Bosh and Dwyane Wade in your portfolio right now – are set to unveil a $20 billion dividend thanks to strong earnings despite falling iron ore prices in the second half of 2021.
That’s according to estimates released by Goldman Sachs (GS) analysts Paul Young and Hugo Nicolaci, who predict EBITDA figures for ASX-listed bulk miners will rise around 45% from previous reports on first half results 12 months ago.
Iron ore miners who benefited from record prices at the start of 2021, offering a windfall of full-year dividends just six months ago, will be joined by coal miners, base metals and stocks booming mineral sands in the payment part.
Young and Nicolaci fell short of consensus on a number of their estimates, saying they believe companies reporting interim results will take a cautious approach due to cost uncertainty and nervousness over the outlook for the market. Chinese economy.
“While capital returns are expected to be strong (average payout around 50% and dividend yield around 8%), we believe that companies reporting interim/1H results are likely to adopt a conservative dividend approach based on uncertainty over costs and the outlook for China, as we see RIO paying 80% of EPS and the coal sector bringing the biggest increase in payments,” they wrote in a note to clients.
“December quarter results saw significant inflation in operating costs due to rising input prices and labor shortages (foreign exchange is the only tailwind) and a large fund increase working capital due to rising commodity prices and logistical challenges The labor cap is expected to ease in June H, but operating expense inflation will persist through 2023 in our view, and we believe the capex inflation will likely be the next topic of discussion.
“Overall, we think the opex and investment forecast (and even production) for CY22 could be an area of disappointment for the sector relative to expectations.”
“Growth is back on the agenda for most of the sector (with the exception of coal companies) and we expect increased spending on new mines and decarburization projects with updates for the main options for growth.”
iron ore earnings
Rio Tinto Inc (ASX:RIO) is expected to be the biggest payer again, although the mining giant reports its annual results while others are in their first half.
Rio will pay dividends of $4.39 per share, GS predicts, or about $10 billion in Australian dollars. This will translate to annual EBITDA of $38 billion and NPAT of $21 billion, versus consensus of $21.7 billion.
The only dividend bigger than Rio ever delivered was its semi-annual dividend, fueled by iron ore prices that hit record highs during the June half of 2021.
But a major focus will be Rio iron ore cost forecasts, with GS expecting these to rise from around $18/t in 2021 to $21/t in 2022, well above above BHP (ASX:BHP) and FMG (ASX:FMG) cost structures.
BHP is expected to pay an interim dividend of $1.27, or approximately A$9.02 billion in the first dividend payment since its split-company structure was merged into a single Australian-registered company.
Ignoring its soon-to-be-sold oil division, GS expects BHP to report underlying EBITDA of $17.7 billion, with net debt of $9.6 billion.
FMG, which GS is pricing for sale due to uncertainties surrounding its valuation and decarbonization costs, expects the miner chaired by Andrew Forrest to report underlying EBITDA of US$4.9 billion (vs. US$.6 billion in FY21 due to lower iron ore prices and increased grade rebates) and NPAT of $2.8 billion.
An interim dividend of US$0.64 per share would yield a semi-annual payout of $2.76 billion, of which nearly $1 billion would go directly into Twiggy’s pockets full of gold.
Questions about FMG’s green energy division, Fortescue Future Industries, and its US$3.5 billion Iron Bridge magnetite mine will once again dominate.
“The outlook for div (future payout), capex, opex, Iron Bridge and Fortescue Future Industries (FFI) projects and spend will be a focus,” Young and Nicolaci said.
“We believe decarbonizing the Pilbara could cost FMG over $7 billion and requires +US$50/tonne carbon or a green premium to be NPV positive. FMG pointed out that the Pilbara decarbonization project/assets would logically be integrated within FFI.
Iron Ore Giants Share Price Today:
Coal miners back to work
Australian coking coal prices hit new highs at US$445/t, and thermal coal prices are also very high due to the gradual easing of Indonesia’s coal export ban .
It continues a purple stain for once-broken coal companies whose profits were wiped out by a collapse in demand in the early days of the pandemic.
Whitehaven Coal (ASX:WHC) and Coronado Global Resources (ASX:CRN) are expected to resume dividends for the first time since February 2020 as record prices have invigorated earnings and brought them back to likely profitability.
GS expects Whitehaven to generate $650 million in EBITDA and $360 million in NPAT to support an interim payout of 7 cents per share, above consensus of 5.4 cents.
“WHC recently lowered its production guidance for FY22. We believe the focus will be on capital return prospects and that WHC may increase its minimum dividend to 50% (from 20% to 50 %) and look at share buybacks versus organic growth, given that the company is trading at a discount to our NAV,” said Young and Nicolaci.
Coronado is expected to generate $480m of underlying EBITDA and $150m of NPAT (consensus $530m and $200m), with a final dividend of 8.3c (consensus 3.6c) .
“We are forecasting 2022 forecasts of 18 Mt of salable coal production, unit costs of $65-70/t and a large increase in capital expenditure (group of $150 million), primarily at the mine at Curragh open pit after a
period of underinvestment,” said Young and Nicolaci.
“We would like to see a change in the current dividend policy from 60-100% FCF to a minimum of 50% NPAT, which we believe would be more appropriate for a conservative balance sheet through the cycle.”
Coal stock prices today:
Other great miners will return money
In the diversified sectors, base metals and mineral sands, strong increases in interim and annual dividends are also expected.
South32 (ASX:S32) would increase its six-fold increase if it paid the $0.086 expected by Goldman, or 7 times if it paid the consensus of $0.099 per share.
OZ Minerals (ASX:OZL) would double its 2021 payout from 17c to 38c after a year of record copper prices.
Meanwhile, Iluka Resources (ASX:ILU), which has benefited from higher zircon and rutile prices through 2021, could increase its payout between 6.5 and 8 times on the 2c it issued 12 months ago, GS expecting a final dividend of 12.9c against a consensus of 15.9c.
GS expects Iluka to report underlying EBITDA of $640 million and NPAT of $300 million for the full year 2021, compared to $423 million and $151 million respectively for 2020.
Iluka, S32 & OZ stock prices today: