The big Aussie miners have cash to burn again

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The big Aussie miners are once again awash with cash.

Ratings agency S&P Global said this morning that the “credit trajectories of the biggest mining companies globally” have now reversed course.

“As many commodity prices have rebounded, the benefits of years of cost and especially capital expenditure (capex) cuts have turned many companies into cash machines,” said S&P.

With a focus on the cost side driven by a downturn in the commodities cycle, the likes of BHP, Rio Tinto and Fortescue were well placed to benefit as the cycle turned in 2016 and the spot price of iron ore soared by over 80%.

S&P note that in addition to cost cutting, the big miners also focused on debt reduction measures in the form of asset disposals, dividend cuts and equity raising. Combined with the lift in free cash flow generated by higher commodity prices, “financial policy is now a matter of choice rather than defensive necessity”.

With the combination of improved cost efficiency and a jump in top line revenue, it’s no surprise that shares in the big Aussie miners have seen a commensurate increase in price. BHP and Rio Tinto have both increased by about 40% from the same time last year.

Fortescue has soared by 140% after reducing its net debt to $4 billion from almost $8 billion in 2016.

The S&P release states that the big miners are still focused on cost efficiency, and “there are only a handful of major greenfield projects globally and capex guidance is typically only at a maintenance to low sustaining level”.

“Even as some costs and working capital re-inflate with commodity currencies and firmer oil price, unless commodity prices take a sharp turn south, the major miners have a strong pipeline of cashflow – although not yet active new projects.”

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