Are mining companies going to come unstuck because of China?

Sunday, May 14 2017 by
11

Mining companies or commodities businesses have made some big gains in 14 months. And these gains could come unstuck if China sees a slowdown.  

The “Unsurprising” rebound of the mining sector

This chart shows the steady decline in the mining sector.

mILdp6F.png

The FTSE Mining Index has fallen by 15% since hitting a two-and-a-half year high in February. Also, Goldman Sachs downgraded ratings for several mining companies, citing Beijing is tightening its monetary policy.

Below is a table showing the previous troughs in the mining sector and its later recovery:

M9Id3VV.jpg

One reason for this weakness is the softening demand from China.

Is this a data blip, whereby China would continue pumping credit into its economy?

Or, could this be an end to the Chinese credit boom?

To answer in full, some unrelated topics on the mining sector needs covering but plays a big role in the demand for commodities.

Why China so important to mining businesses?

If you look at this chart, it is not surprising to see why:

vu22ged.png

For coal producers, their revenue stream is very much dependent on Chinese demand. Those who mine copper, zinc, nickel, iron ore and lead are also very exposed to any Chinese slowdown. Especially the major players (See table above). 

The question investors should ask: “Why am I showing you this chart?”

Because China is going to experience another slowdown

The billion dollar question is when will this happen!

One of the biggest factors for natural resources is its huge infrastructure projects. And the biggest is the Chinese Housing Market.

wHvugOJ.png
The last time China saw home price decline was two years ago. And that fall of minus 5% sent commodities prices to collapse.

Since the summer of 2015, the rebound in China’s home price began. Prices started to turn positive in late 2015 and peaked in late 2016 to 13%. That saved the mining industry from a series of defaults.

Is the above chart signalling a decline?

We don’t know until you detail further evidence.

China Housing – in detail

On a month-on-month basis, you could suggest a rebound, pointing to last month data!

RQ5zbiJ.gif

Or, it could be a blip.

About their home prices, China is becoming more expensive. With prices at $171 per square foot, compared to the U.S.…

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Disclaimer:  

By reading my articles and newsletters, you agree to use the research of Walbrockresearch.com at your risk. The purpose of this site is to educate and entertain readers. In no way, we are giving investment advice though the information provided is to my knowledge accurate at the time of the report. You should do your research, or seek advice from qualified professional investment advisors.

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Anglo American PLC is a mining company. The Company has a portfolio of mining operations and undeveloped resources with a focus on diamonds, copper, platinum group metals (PGMs), and bulk commodities. Its segments include De Beers, Platinum Group Metals, Copper, Iron Ore, Nickel and Manganese, Coal, and Corporate and other. De Beers segment is engaged in the diamond business. Within the Platinum Group Metals segment, it has operations principally located in the Bushveld Complex in South Africa. It holds interests in two copper mines: Los Bronces and Collahuasi in Chile and is developing the Quellaveco mine in Peru. Its iron ore operations provide customers with iron content ore through assets in Brazil and South Africa. It has metallurgical coal assets in Australia, and thermal coal assets in Colombia and South Africa. more »

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1896.4p
Change
0.7%
Mkt Cap (£m)
26,167
P/E (fwd)
8.4
Yield (fwd)
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Anglo Pacific Group PLC (Anglo Pacific) is a United Kingdom-based company, which focuses on royalties connected with the mining of natural resources. The Company's producing royalties include Kestrel, Narrabri, Maracas Menchen, El Valle- Boinas/Carles (EVBC) and Four Mile. The Company's development royalties include Salamanca, Groundhog, and Amapa & Tucano. The Company's early-stage royalties include Pilbara, Ring of Fire and Dugbe 1. Kestrel is an underground coal mine located in the Bowen Basin, Queensland, Australia. The Company holds interests in the Narrabri coal project, which is located in New South Wales, Australia. The Narrabri royalty includes the Narrabri mine, and the Narrabri South project. The Maracas Menchen project is located in approximately 250 kilometers south-west of the city of Salvador, the capital of Bahia State, Brazil. EVBC is located in the Rio Narcea Gold Belt of northern Spain. The Salamanca uranium project is located in Spain. more »

LSE Price
210p
Change
-2.3%
Mkt Cap (£m)
381.1
P/E (fwd)
9.6
Yield (fwd)
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Antofagasta plc is a copper mining company. The Company is engaged in by-product production and has interests in transport. The Company's segments include Los Pelambres, Centinela, Michilla, Antucoya, Zaldivar, Exploration and evaluation, Railway and other transport services, Mining, Water concession, and Corporate and other items. Its operating divisions include Mining and Transport. The mining division includes Los Pelambres, Centinela, Antucoya and Zaldivar. The transport division operates the main cargo transport system in the Antofagasta Region of Chile, moving goods and materials, such as sulfuric acid and copper cathodes to and from mines by road and rail network. The transport division provides rail and road cargo services in northern Chile. Its mining operations produce copper with by-products of gold, molybdenum and silver. Los Pelambres and Centinela produce copper concentrate containing gold and silver. The Centinela, Antucoya and Zaldivar produce copper cathodes. more »

LSE Price
907.4p
Change
-1.7%
Mkt Cap (£m)
8,946
P/E (fwd)
18.4
Yield (fwd)
2.5



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