Mining exports smash records as sector enters new boom
The resources sector is poised to unveil a resurgent profit season as metal and coal exports hit a record high.
The nation’s mining industry has entered a new boom after delivering a record set of monthly exports, positioning the sector for a resurgent profit season.
The latest figures from the Australian Bureau of Statistics yesterday showed that the nation’s mines exported a record $13.4 billion of metals and coal in December, smashing the previous record of $12.4bn set in December 2013, when the last mining boom was in full swing.
The sharp rise in exports — which represents more than double the $6.4bn worth of coal and metals sold in January last year — was driven by a dramatic surge in coal prices, continued strength in other commodities, especially iron ore, and record export volumes as projects built during the last boom crank up.
The strong end to 2016 helped Australia deliver its largest ever trade surplus, with the dollar rallying strongly yesterday on the back of the figures.
The figures set the stage for a bumper set of profit numbers when mining companies start reporting their financial results in the weeks ahead.
Mining giant Rio Tinto is poised to get the ball rolling next week, when it unveils what analysts are tipping will be a $US4.8bn ($6.3bn) profit for the 2016 calendar year, reversing the writedown-driven $US866 million loss it reported a year ago.
Its rival BHP Billiton is also set to deliver a sharp improvement in profitability. Analysts are estimating it will post first-half earnings of $US5.7bn, well up from the $US2.1bn in the previous six months.
While the price of Australia’s biggest export, iron ore, continues to remain well below its boomtime high, the much higher volumes of iron ore being exported are more than making up for the price erosion.
The $7.7bn worth of iron ore exported in December was the second-best monthly figure from the sector in history. The iron ore sector’s best ever month came in December 2013, when the industry generated $8.5bn in exports, but iron ore was averaging $US135 a tonne back then, compared with around $US83 a tonne today.
The miners’ revenues today may also translate into higher profits than they delivered during the height of the last mining boom. Most miners have used the downturn of recent years to substantially reduce their cost base, with iron ore producer Fortescue Metals slashing its basic production cost from more than $US50 a tonne in 2013 to less than $US13 a tonne at present.
The $5.7bn in coal exported during December, meanwhile, was the highest figure from the industry since November 2008.
Coal’s boost to the national bottom line looks set to be temporary, however, with coal prices cooling sharply in recent weeks.
NSW Minerals Council chief executive Stephen Galilee told The Australian that, while the cyclical nature of the sector meant the coal industry’s barnstorming December performance was likely to be a one-off, the broader turnaround in the resources sector was clear.
“The coal industry in particular, and the resources industry generally, is in a much better position now than we were even just a year back,” Mr Galilee said.
“We’ve got record export volumes through the port of Newcastle and our metals miners are generally doing better too. We’re back to the boom.”
Mining stocks were the best-performed sector within the S&P/ASX 200 index over the past year, delivering an average 65.3 per cent return compared to the overall 13.1 per cent gain in the index.
The standout performers amid the resurgence have been Whitehaven Coal (up 563 per cent), gold producer Resolute Mining (up 325 per cent) and Fortescue (up 361 per cent).
The quantum of the share price recovery has raised questions over whether the improved earnings are already priced in and whether it is too late for investors to increase their exposure to the sector, but Deutsche Bank equities strategist Tim Baker yesterday said there were clear reasons to stick with mining stocks.
Mr Baker said it was likely that earnings in the sector would continue to grow by more than 50 per cent if current spot commodity prices held fast.
“Share prices look to be pricing in current earnings forecasts, but spot prices imply large upgrades to forecasts. Many companies are on single-digit price-to-earnings ratios using spot prices,” Mr Baker said.
In addition, he said, free cash flows were reaching record highs with lots of cash set to be returned to shareholders.
“High commodity prices and restrained capex should create record free cash flows for miners,” he said.
“Free cash flow yields in the double digits should ensure higher dividends and potential buybacks for shareholders.”
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