Analysts are seeing the recent drop in earnings by the world’s biggest mining companies as a sign that the days of bonanza dividend payouts are over.

Despite record profits and a surge in commodity prices post-pandemic, recent earnings reports by some of the world’s major mining companies have forced investors to reassess expectations, particularly for metals and minerals, for the next six to 12 months.

In July and August 2022, a slew of commodity producers, including BHP and Rio Tinto are expected to report a significant fall in dividend payouts compared to 2020 and 2021, when the price of key metals like iron ore and copper surged. 

This year, iron-ore producer Rio Tinto’s dividend pay-outs were 50% of earnings – significantly less than the 75% it paid to shareholders last year, leading to a drop of around 5% in its share prices on some stock exchanges. 

However, many of these companies are now facing rising energy costs, higher operating expenses, and slowing demand, all of which are starting to affect their bottom lines.

According to analysts, other key expenses include labour, along with the rising cost of processing chemicals and explosives due to inflation and supply shortages.

Analysts also attribute the fall in profits to a slowdown in demand by steel-producing countries like China, hit hard by COVID-19 lockdowns and a construction/property slump.

Extreme weather events, such as torrential rainfall, unusually high temperatures, and droughts are also affecting the sector. 

This has led Anglo American to slash its dividends by 27% in July compared to the previous year, citing climate events that hurt iron ore production in Brazil, coal mining in Australia, and platinum mining in South Africa during the first half of 2022.

Not all doom and gloom

However, both Rio Tinto’s CEO, Jakob Stausholm, and Anglo’s Duncan Wanblad think the current fall in results needs to be viewed from a wider perspective.

Many of these companies are still enjoying record overall earnings compared with previous years: for example, Anglo American’s recent results may have been down in 2021, but are still their second highest first-half profits to date.

Stausholm told Bloomberg that he believes the medium to long-term outlook for the sector remains bright, provided people see this as an opportunity to pivot towards greener energy sources.

Indeed, some see the current shortages of traditional energy sources like oil and coal as the perfect opportunity for more countries to switch over to solar, nuclear, and wind power as part of the wider global energy transition needed to meet the carbon-reduction targets of the Paris climate agreement.

Bucking the trend

Unlike many of its peers, however, experts expect Glencore to be one of the few mining companies to buck the downward overall trend due to its thermal coal interests. 

The company’s thermal coal investments have enjoyed record profits due to natural gas shortages and oil sanctions caused by the conflict in Ukraine.

Glencore should also benefit from the boom in copper prices, which hit an all-time high in March and is expected to remain buoyant due to growing demand from the renewable energy and electric vehicle (EV) sectors.

According to the World Bank’s latest Commodity Markets Outlook report: “Metal prices continued to climb higher in the first quarter of 2022, with aluminium, copper, nickel, and tin prices reaching historic highs in early March. 

“Inventories at metal exchanges have declined to very low levels, adding to price volatility.

“Risks to the forecast include further disruptions to supply as a result of the war (on the upside) and slowing global growth (on the downside).”