Gold miners look good, but prospects are brightening forgeneral miners too, says John Stepek.
Plunging commodity prices have left investors fretting for the financial health of global mining companies, which borrowed heavily during the boom times to pay for rapid expansion and a rising cost base. Between the end of 2008 and the third quarter of 2013 (when debt levels hit their peak), outstanding metal and mining company debt rose from $53bn to nearly $150bn, according to the Bank of America Merrill Lynch US Metals, Mining and Steel index.
Now that hard times have arrived, the bigger players in the sector are aiming to assuage these fears shoring up their balance sheets and reducing their interest payments by buying back their own bonds. As the Financial Times reports, "miners including Barrick Gold and Anglo American completed $2.5bn of bond repurchases" last month. Barrick has used cash from selling off unwanted assets to reduce its debt from $13bn to $10bn, and it aims to pay back a further $2bn this year.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Meanwhile, Anglo one of the worst-performing stocks in the FTSE 100 last year, falling by roughly 75% in 2015 paid $1.7bn to buy back $1.83bn of debt (the bonds were trading below face value, handing the company a $130m profit from the trade).
As outlined in our December cover story by Edward Chancellor, we have been keen on gold miners for a few months. The sector has been in the doldrums and thus under pressure to cut costs and improve efficiency for longer than the mining sector in general.Broad-based options for playing the gold mining sector include the expensive but convenient BlackRock Gold & General Fund, or the less expensive exchange-traded fund, the Market Vectors Gold Miners UCITS ETF (LSE: GDXJ).
However, prospects look brighter for general miners too these efforts to get to grips with the state of balance sheets are just one aspect of a wider move to "shape up" amid the downturn. One of our favourite individual picks in the sector is Rio Tinto (LSE: RIO) see page opposite for more but if you're looking for wider exposure, the BlackRock World Mining Trust (LSE: BRWM) is trading on a discount to net asset value of around 10%. The prospective dividend yield of around 9% still looks rather like wishful thinking.
However, the trust has rebounded sharply since the market lows in January, and with the Federal Reserve still cautious on pushing through further interest rate rises in America, the potential headwind of a stronger dollar seems to be off the cards for now.
-
Vanguard to bring in £4 minimum monthly fee - is it still a cheap deal?Vanguard is overhauling its charges, with DIY investors set to pay more from January. How will the fees compare to its rivals, and what should customers do?
-
UnitedHealth shares slump — is the US healthcare industry in trouble?The murder of UnitedHealthcare’s CEO has shone a spotlight on a struggling US healthcare industry with an inauspicious outlook
-
These 2 stocks are set to soarTips The returns from these two aluminium and tin stocks could be spectacular when the commodity cycle turns says David J Stevenson.
-
A lesson for investors from a ill-fated silver mineAnalysis Mining methods may have changed since the industry’s early days, but the business hasn’t – digging ore from the ground and selling it at a profit. The trouble is, says Dominic Frisby, the scams haven't changed either.
-
The natural resources industry is in a tight spot – which is bad news for the rest of usOpinion The natural resources industry is in a bind. We need it to produce more energy and metals, but it has been starved of investment, plagued by supply chain issues, and hobbled by red tape. That’s bad news for everyone, says Dominic Frisby.
-
How to invest in the copper boomTips The price of copper has slipped recently. But that’s temporary – the long-term outlook is very bullish, says Dominic Frisby. Here, he explains the best ways to invest in copper.
-
Why investors should consider adding Glencore to their portfoliosTips Commodities giant Glencore is well placed to capitalise on rising commodity prices and supply chain disruption, says Rupert Hargreaves. Here’s why you should consider buying Glencore shares.
-
How to invest in the multi-decade boom in industrial metalsTips The price of key industrial metals has already begun to rise. The renewable energy transition will take them higher, says David Stevenson. Here's how to profit.
-
Avoid China’s stockmarket – here’s what to invest in insteadOpinion China’s stockmarket is not a good place for investors to be. But you can't just ignore the world's second-largest economy, says Dominic Frisby. Here, he picks an alternative China play.
-
6 gold funds to buy to add exposure to the yellow metalGold Gold funds are one of the best ways of adding gold to your portfolio. We pick some of the best gold and gold-mining funds.
