How Do 3 Of The U.K.'s Major Miners' Results, Dividends Measure Up?

by: Steven Dotsch

These days, the United Kingdom is not regarded as a country with any large mining activities. Still four of the world's largest mining conglomerates are listed in London, including Anglo American (AAUKY.PK), (OTCPK:AAUKF), BHP Billiton (NYSE:BBL), Rio Tinto (NYSE:RIO), and Xstrata (OTC:XSRAF). Let's focus on the first three.

Anglo American (AAUKY.PK):

Anglo American announced a final dividend of US 46¢ going ex dividend on 28 March and payable on 26 April. This is 15 per cent up on last year's final. For the full year, the pay-out is 74¢. That's up 13.8% on the 65¢ paid for 2010 and substantially ahead of inflation.

Elsewhere, operating cashflow was up as well as underlying EPS was up 23 per cent to $5.10. What's more, net debt was down to $1,374m from $7,384m a year ago. That big fall in debt coupled with a decent rise in net assets enabled gearing to decrease to a mere 3.5 per cent against the 21.6 per cent at the end of 2010.

Looking ahead, Anglo has indicated that the longer-term outlook for its mix of commodities remains strong. That is despite short-term uncertainty, particularly in Europe. It expects sustained growth in the emerging economies, notably China and India.

In comparison to BHP Billiton, the company suspended its dividends for a period a few years ago. When payments recommenced they were little more than half the earlier level. Despite the suspension, the share price rose so that by the time dividends were paid again, which was in 2010, the available dividend yield was relatively low.

Dividends for 2012 are predicted to rise strongly to 53.8 pence (with 2013 forecast of 56.2 pence), which at current exchange rates is around 85¢, an increase of 15% over 2011. Still, compared to 2007, which was the last year before the dividend cut, when they paid out 124¢, there is still a long way to go to restore their dividend track record to its former glory.

So we're still looking at only about a 2.0 per cent expected dividend yield for 2012. That kind of dividend yield is just too low for us to contemplate even if they manage 15 percent annual dividend increases going forward.

BHP Billiton

While revenues rose 9.7 percent to $37.5 billion, BHP Billiton reported a 5.5 percent slide to $9.94 billion (£6.25 billion) in attributable half-year profits. Analysts had been expecting the world's biggest miner to post a net profit of around $10 billion for the second half of 2011.

BHP Billiton is forecasting "modest growth" in the coming quarters from both the US and Japan, still recovering in activity following the impacts of the March 2011 tsunami, while China, "after an extended period of policy tightening," was seeing an expected slowdown in fixed asset investment and industrial production.

BHP Billiton is upping its interim dividend by 20 percent to US 55¢ going ex-dividend on 2 March with payment due on 22 March. The sterling conversion will be announced on 2nd March. This dividend is a comfortable 19.6 per cent up on last year's interim despite basic EPS excluding exceptional items being down 2.9% at 186.8¢ and operating cash flow being roughly the same.

Gearing increased following a major acquisition but it is still a reasonable 33.9 per cent though, compared to only 10.4 per cent at the year end of 30/06/11.

Rio Tinto (RTPFP.PK)

While Rio Tinto announced record underlying EBITDA of $28.5 billion, 10 per cent above 2010, it surprised the markets with a much larger than expected 59 percent decline in full year earnings due to a multibillion impairment charge, prompting two of its directors - chief executive Tom Albanese and Chief Financial Officer Guy Elliott - to turn down their annual bonuses.

With the mining giant's underlying earnings jumped 11 percent from 2010 to US$15.5bn last year, net earnings plummeted to US$5.8 billion as a result of a US$8.9 billion charge related to a write-down of Rio's aluminium business.

"As the acquisition of Alcan happened on my watch, I felt it only right not to be considered for an annual bonus this year," Albanese said.

Nevertheless, reflecting confidence in the long-term outlook for the business, Rio surprised the market on the upside raising its annual dividend by 34 percent to US$1.45 per share, going ex-dividend on 29 February with payment due on 12 April. The sterling conversion will be announced on 3rd April.

During 2011, the group paid returned some US$7.7bn to shareholders: US$2.2 billion in dividends and a further US$5.5 billion through share buybacks. Rio did not announced any new share buyback plans.

While stepping up its dividend, Rio also flagged higher spending on projects for 2012, budgeted at $16 billion, up from $12.3 billion last year, with more spending on iron ore expansions likely to increase even further.

Disclosure: I am long BBL.

Additional disclosure: We run the Dividend Income Portfolio, which owns a shareholding in BHP Billiton Plc, purchased when the shares were historically undervalued as per our valuation methodology.