Brutal re-ranking of big miners

The rise of the commodities supercycle from 2001, and its fall, has precipitated a dramatic reordering of most of the big names in mining.

Author: Barry Sergeant
Posted: Friday , 20 Feb 2009

JOHANNESBURG -

In September 2005, BHP Billiton erstwhile CEO Charles "Chip" Goodyear gave a presentation in the Hyatt Hotel in Rosebank, Johannesburg, kicking off with a slide that showed the world's top 20 sectoral companies as at March 2001. The top four stood out, with values between USD 25 and 30bn each: Alcoa, BHP Billiton, Anglo American, and Rio Tinto. In fourth and fifth place, a long way behind, stood Alcan, and then CVRD, now known as Vale.

Since then, there have been brutal changes. Today, BHP Billiton, more correctly classified as a diversified resources stock rather than a miner, ranks as by far the biggest in the sector, with a market value topping USD 100bn, equal to nearly five Anglo Americans. Another big winner, Vale, is clearly No 2, at USD 72bn, followed by Shenhua, a coal miner which also operates assets beyond the mining sector. Rio Tinto remains in the top grouping, with a USD 38bn value, followed by Barrick, the world's biggest gold digger, then PotashCorp, the humble potash miner from Saskatchewan, which also produces phosphates and nitrogen products, and then Goldcorp.

The pre-eminence of Barrick and Goldcorp reflects the status of gold bullion as relatively the best performing commodity in the world, trading on Friday within spitting distance of its record price, set in March 2008. Next on the list: Anglo American, which on Friday published 2008 results with detail that spooked the market, triggering heavy selling of the stock. Anglo American's net debt, which started out in 2008 at USD 5.2bn, exploded to USD 11bn by the close of the year.

Debt also pretty much takes centre stage at Rio Tinto. During 2007-2008, Rio Tinto purchased all of Alcan for USD 38bn in cash. Today, the entire Rio Tinto edifice is valued at USD 38bn, including, of course, Alcan. In recent results, Rio Tinto said its net debt had reduced by USD 6.5bn during 2008 to USD 38.7bn at 31 December 2008; assets worth USD 1.6bn have since been sold, to Vale.

Alcoa, meanwhile, has fallen off a cliff, and currently ranks as No 41 on the list of the world's Top 100 miners. Aluminium prices are perhaps the worst performing among the base metals complex, and one of the worst among commodities generally. Debt is also a worry for the group, through it had the luck or the wisdom to step aside from its bid for Alcan when Rio Tinto announced its knock-out counter-bid.

Debt has also taken the wind out of the sails at Xstrata. The diversified miner recently announced a fully underwritten, but massively diluting, two-for-one rights issue at GBP 2.10 a share, to raise USD 5.9bn. Some USD 2bn in cash will be used to buy the Prodeco thermal coal assets in Colombia from Glencore, Xstrata's largest shareholder. Xstrata's post rights issue debt is scheduled to fall to around USD 12.6bn, pushing its gearing ratio down to less than 30%, which, says the company, is "at the lower end of the target range".

Even the new level of debt, however, is higher than Xstrata's current market value of USD 9.3bn. Xstrata's market value peaked out in May 2008 at USD 62bn, putting it firmly in the global Top 10. Debt is also a big issue at Teck, after its acquisition during 2008 of Fording, a leading coal name. As of 31 December 2008, Teck had USD 9.4bn in outstanding debt, of which USD 6.4bn is current. Teck's stock price is 94% off its highs; its market value stands at just USD 1.5bn.