MELBOURNE: Global mining companies are set unveil their biggest falls in profit in more than a decade and are clearing the decks with multibillion-dollar writedowns on poorly performing assets as they bring in new chief executives.
A sharp drop in commodity prices has driven down half-year profits by 40-50 per cent from a year ago for the top five mining firms, forcing them to shelve expansion projects, slash costs, and sell assets to boost returns.
For the top three, BHP Billiton, Brazil’s Vale and Rio Tinto, iron ore earnings are likely to cushion losses in coal, aluminium and nickel for the period, which could be the low-water mark for profits.
Chief executives are being punished for splurging cash in the boom years on projects and acquisitions instead of rewarding shareholders more generously, and investors are calling for Rio and BHP to rethink their dividend policies.
One of the 10 largest shareholders in BHP and Rio’s Australian stock said his fund had been pressing both to pay out more of their profit to shareholders. He predicted Rio Tinto, anxious to win investor goodwill after a $14 billion writedown, would move in that direction.
“The logic of not paying out a higher dividend to shareholders is so the company can use the funds effectively ... for a desirable return on investment,” said Ross Barker, managing director of Australian Foundation Investment Co.
“The company (Rio) hasn’t shown a lot of skill at that in recent years, so perhaps the pendulum might tip a bit more towards shareholders.”
Rio sacked CEO Tom Albanese last month after announcing it was slashing the value of its aluminium business and Mozambique coal assets, the latest in a string of writedowns on pricey acquisitions.