Is The Cycle Running Out? Mining Companies Still Have A 22% Run


In a year 2021 in which raw materials are being one of the leading assets in the market, with all industrial metals appreciating on the market, with increases that range between 83% for tin, and 14.6% for nickel , the large listed miners are going through a rough year, with increases that do not reach 10% on average for the BlackRock World Mining Trust index.

The large mining companies in the sector , the 107 companies that are listed with more than 1,000 million euros in capitalization, have yet to collect the impact of the rise in metals in their prices.

According to the market consensus collected by FactSet, these companies have, on average, an upward potential of 22.3% at this time. It is the path that analysts give it, after increasing the target price of this group of companies by more than 52% from the first day of the year.

In general, the perspectives are very good from the experts for the mining sector, one of the most attached to the economic cycle that can be found in the market. Now, of the 107 listed firms, 56 receive a buy recommendation from analysts, 42 are a hold, and only 9 are a sell.

Increase in remuneration
The 10 largest firms in the industry are now trading at a 9.55-fold profit multiplier , based on next year’s earnings forecast, and are expected to pay out a dividend that reaches a 6.30% return in 2021. AND is that the large mining companies have focused on increasing remuneration in recent months, given the improvement in the results they are experiencing this year.

“The high level of dividend distribution and share buybacks reflects the leeway that CFOs have to achieve business objectives, and shows their confidence in maintaining high metal prices,” explains Tommy Träsk, analyst from Scope’s corporate ratings team.

“The four most important mining companies in the world – BHP, Glencore, Rio Tinto and Anglo American – generated more than 50% more profits in the first half of 2021 than in the whole of 2020 and have announced a distribution for 2021 of more than twice the profits of the previous year, “explains Träsk.

The Spanish ArcelorMittal is among the 10 largest firms by capitalization in the sector
Mining companies have increased the prices of their products in the last year, especially after the bottlenecks in the recovery from the pandemic have formed . Industry sources explain that there has been a sudden increase in demand, as different distributors and manufacturers have tried to satisfy the consumption that had been postponed during confinement, something that has lengthened delivery times.

It is at this time, when these terms are extended, when metal producers end up raising the prices of their products, according to these same sources.

Arcelor, the greatest potential
The Spanish ArcelorMittal is, among the 10 largest firms by capitalization in the sector, which now maintains the highest upside potential, of almost 51% for analysts, who place the company’s target price at 39.71 euros in this moment.

With the expected profit for next year the company’s shares are now trading with a PER (profit multiplier) ratio of less than 4 times at this time , well below the 13 times average for the entire sector.

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