How to find mining shares with dividends that are bouncing back

Wednesday, Feb 08 2017 by
How to find mining shares with dividends that are bouncing back

Metals and Mining shares were some of the big winners in 2016. Various factors conspired to push their prices higher, which wrong-footed a lot of investors. But one of the interesting things about this surprising bull run was that it came just as a number of miners were actually cutting their dividends. Those two factors don’t normally go hand in hand.

But with the worst of those cuts perhaps over, there are signs that dividend growth is back on the agenda. In fact we’ve seen a spate of companies easily beating their dividend forecasts.

Mining booms and busts

Mining stocks have been on a roller coaster run since the turn of the century. Initially, it was strong demand from emerging markets like China that was the catalyst for strong gains. Even a sharp pullback in the financial crisis proved short lived. But the momentum ran out by around 2011 and didn’t return until 2016.

This chart shows how the FTSE 350 Mining Index has swung wildly against the FTSE 350 over the past 10 years.


From the get-go last year, rising commodity prices signalled a change in fortune. It came at a time when miners were in much better shape after several years of cost-cutting, asset sales and sweating production more efficiently. For UK-quoted stocks, the devaluation of sterling last year also made their dollar-denominated earnings and dividends more appealing.

Opinions are divided on how far this rally will go. Neil Woodford, whose Woodford Equity Income Fund lagged the FTSE All Share last year, is sceptical. His annual review suggested that the recovery in mining and oil & gas sectors has gone “way beyond what the fundamentals would justify”.  But others disagree, with analysts at Goldman Sachs and Citi, for instance, predicting a strong run from some commodities in 2017 as oversupply issues fade away.

Mining the market for dividends

One interesting feature of the mining gains in 2016 was that dividends from the Basic Materials sector halved year-on-year to £3.3bn. Figures that low haven’t been seen since around 2010. According to Capita Asset Services, which tracks UK dividends, payouts from the Mining industry group fell by 64% to £2.4bn.

But for the time being, those sharp reductions seem to be the last wave of cost-cutting. In fact, some mining companies are now expected to start hiking their payouts, and some already have. It…

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7 Comments on this Article show/hide all

gus 1065 8th Feb '17 1 of 7

Morning Ben. Good article, food for thought. Like O&G not always the most popular of sectors, especially for relatively recent investors burned over the last few years.

For better or worse, I've invested in the sector for over 20 years and watched the ebb and flow of the various cycles. In my opinion, the move to cut dividends came quite a bit later than it should have and was part of a wider change that saw the bigger players look to focus less on growing output and more on looking at RoC combined with a desire to deleverage the balance sheets by selling non-core or less capital efficient assets.

We're still mid way through the process but helped by recovering commodity prices and (surprisingly) robust economic growth the rebound in the share prices of the likes of Anglo American (LON:AAL) Rio Tinto (LON:RIO) Glencore (LON:GLEN) and BHP Billiton (LON:BLT) has been a feature of the last 12 months or so. I personally think there is more balance sheet deleveraging to go before we get back to full dividends but hopefully these will be based on a position of strength.



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crazycoops 8th Feb '17 2 of 7

At the smaller end of the spectrum Central Asia Metals (LON:CAML) are on a forecast yield of 5.65% for 2017 and have a progressive dividend policy. It might also be worth looking at BlackRock World Mining Trust (LON:BRWM) paying 4.5% and providing the benefit of diversifying across the sector. I hold both.

Blog: Share Knowledge
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tonybryan 8th Feb '17 3 of 7

I have some gold bullion, I also hold Blackrock World Mining Trust and Blackrock Gold and general.
I do not usually hold individual stocks as it likely to increase trading costs.

Regards - Tony Bryan

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JohnEustace 8th Feb '17 4 of 7

I hold BlackRock World Mining Trust (LON:BRWM) and think the mining recovery still has a way to go, but I'm less optimistic about oil and gas and have taken profits on Royal Dutch Shell (LON:RDSB) and BP (LON:BP.)

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ken mitchell 8th Feb '17 5 of 7

I bought shares and Investment Trusts in the Mining sector too soon, but then averaged down when prices fell way below the 2008 bear market lows. As so often, analysts and brokers were still saying sell at what proved to be the bottom. Since then even a couple of FTSE 100 shares have multi bagged (Anglo American and Glecore) and KAZ Minerals soaring since both new low cost copper mines up and running (up nearly 7 fold from the low and tripled since August). Brokers now more bullish but after the sector doubled last year! Best of the gains must have been had, but unless/until China implodes (excessive debt there a clear worry) hope there is more to come. Safest way to play it is probably via the 3 Investment Trusts, City Natural Resources, Black Rock World Mining and Black Rock Commodities Income. All 3 are high yielders and even after impressive one year performance, the first two still at big discounts to NAV.

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lightningtiger 9th Feb '17 6 of 7

I must admit I have bought mining shares more for capital growth rather than the income & treated the income as icing on the cake in this sector..One of the best so far is SOLG ,still going up without any dividend..FXPO I sold too early & have taken profits from TRIN & S32.
KAZ & HGM still look good but as you rightly say Ken "The safest way ti play is via the Investment Trusts.

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gus 1065 10th Feb '17 7 of 7

A bit of an ugly duckling story stock that isn't usually allowed out in polite company (but I posted about it a while ago in my non-Naps special situations portfolio), Amur Minerals (LON:AMC) posted a striking resource update for its nickel mining project out in Far East Russia this morning.

A stock that has been from 2p to 44p and back down again in the past few years, it may have just delivered the prospect of a golden egg with an appraised 1% nickel ore and projected reserves that would make it the 8th largest global producer. Still little more than a hole in the ground (in fact they haven't even got the hole yet) so still very much in the story stage but who knows, maybe one with a happy ending?


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Ben Hobson

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