* Slump in metals prices weighing heavily
* Rio Tinto and BHP Billiton seen as most robust
* Analysts expect Anglo American and Glencore dividend cuts
* Investec fund considers retreat from mining sector
By Silvia Antonioli
LONDON, July 10 (Reuters) - Hit hard by the accelerated downturn in metal prices in recent months, global mining companies preparing to report results are likely to announce another round of austerity measures to cut costs and convince investors to remain committed to the sector.
With investors looking for evidence of continued capital discipline while credit ratings and dividends are pressured by a rout in prices for anything from iron ore to platinum, reductions in capital expenditure, operational costs and jobs could all be on the cards.
It comes as little surprise, therefore, that miners have been among the worst performers on London’s FTSE 100 index of blue-chip companies so far this year. The FTSE 350 mining index has fallen by about 15 percent since the start of the year.
“The picture has shifted to survival. With prices where they are, you wouldn’t expect any of the majors to think about big buybacks,” said Nik Stanojevic at British wealth manager Brewin Dolphin.
High dividend yields and a boom in metal prices boosted mining shares from the turn of the century, but the downturn in prices since 2011 has exposed companies’ failure to allocate capital effectively and to shore up balance sheets, prompting many investors to take flight.
Mining companies may be taking steps to address the problems, but the waters have been muddied further by concerns over global metals demand, with nervousness heightened by recent economic jitters in China.
BHP Billiton and Rio Tinto , the world’s two largest mining companies, both have a progressive dividend policy and have managed to mollify investors with attractive yields of more than 6 percent.
“If BHP can keep the dividend flat, if Rio Tinto can grow it modestly, then I think that will be seen as a positive outcome,” Stanojevic said, adding that BHP is his favourite stock in the sector by virtue of its high dividend yield.
Some analysts think the duo will have to take on more debt to stick to their payout policy in the current environment, yet both are seen as the most solid bets in the sector. This is largely thanks to their lower-cost assets and the speed with which management has moved to counter the sector’s woes.
“Rio Tinto is going to be the one to beat for me,” said Bernstein Research analyst Paul Gait. “It’s got a better asset base, a more focused management and it’s been quicker than the others to cut costs.”
By contrast, Anglo American, which opens the mining results season with half-year numbers on July 24, is seen as the most vulnerable among the big five, given its higher-cost iron ore assets and slower than expected progress with its overhaul plan.
In a sign of decreasing investor confidence, shares in the company fell to their lowest in more than a decade this week.
“The six-month results are going to be quite important for us to make a call on whether to keep investment in Anglo and in the sector,” Investec Asset Management fund manager Hanre Rossouw said, adding that his fund’s focus is now switching to non-mining resources.
Anglo is expected to unveil significant job cuts as it tries to reduce costs and some analysts have suggested it should also cut its dividend to protect its credit rating and cap its funding costs.
Commodities trading and mining group Glencore is suffering, too, as a forecast recovery in copper prices has failed to materialise. Shares in the company, which has heavy exposure in base metals, dropped to a record low on July 7.
“Despite having less copper exposure than the likes of Kaz Minerals and Antofagasta, it has the least flexible balance sheet and we believe it is most at risk among the majors of a dividend cut,” said Liberum Capital analysts, who have a “conviction sell” recommendation on the stock.
Some, however, were hopeful that Glencore’s trading division might partially offset the loss of revenue from its mining arm.
Investors will also pay close attention to Brazil’s Vale , which is coming off the back of three consecutive quarterly losses, to see if its cost-cutting and production boost can get it out of the red.
Anglo American (July 24)
Expected to post pre-tax income of $950 million for the six months to June 30, according to Thomson Reuters I/B/E/S, down from $2.1 billion a year earlier.
Investors awaiting announcements on the attempted divestment of higher-cost platinum mines in South Africa. Performance of its diamond subsidiary De Beers will also be watched closely.
Vale (July 30)
Citi analysts expect the world’s largest producer of iron ore to post net profit of $199 million for the second quarter, down from $1.4 billion a year earlier. A number of analysts are forecasting a free cash flow deficit for 2015 as Vale invests in its massive new mine in the Amazon. Focus will be on progress with asset divestments.
Rio Tinto (Aug. 6)
Expected to report first-half net income of $1.2 billion, according to Thomson Reuters I/B/E/S, down sharply from $4.4 billion in the same period last year. Its interim dividend is forecast at $1.08 per share, up from $0.96.
Glencore (Aug. 19)
Forecast to report interim net income of $942 million, according to Thomson Reuters I/B/E/S, from $1.7 billion a year earlier. Trading division’s performance of particular interest in weak price environment. Investors will also focus on Glencore’s ability to control its financial leverage, cut costs and protect its dividend and credit rating.
BHP Billiton (Aug. 25)
Tipped to report pretax profit of $13.2 billion for the year to June 30, against $22.2 billion a year earlier. Expected to announce a slight increase in its annual dividend to $1.30 from $1.20, according to Reuters I/B/E/S. (Additinal reporting by Jim Regan and Stephen Eisenhammer; Editing by David Goodman)