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Metals prices: big miners find the going tough

The recent earnings and production reports from some of the world's biggest mining companies have been difficult to read, coming during a period in which metals prices have been holding up.

Iron ore takes its toll

Rio Tinto's (RIO) flagship iron ore division has made a very weak start to the year as component failures at newly-built mines constrict production and force the company to look for replacement infrastructure.

As a result of the war in Ukraine, parts for machinery can be hard to be found. Rio's Australian iron ore exports slumped eight per cent below the same period last year to 71.5 million tonnes and it posted a slow start to the year.

Analysts had expected Rio exports to slump, but the result was still worse than most forecasts: UBS had expected Rio to ship 72 million tonnes in the period, while RBC had expected 73.1 million tonnes, so at 71.5 million tonnes it was a big disappointment.

Nickel and copper downgrades

Meanwhile, in its 9-month trading update, BHP (BLT) cautioned on nickel and copper.

It told investors that full-year (FY) nickel production guidance has been downgraded due to labour shortages arising from the Covid pandemic and copper also suffering from labour shortages and protests by workers and environmental activists.

BHP owns the world's largest copper mine, Escondida.

We need ‘seven more Escondida mines’

Darryl Cuzzubbo, the chief executive of London-listed small cap miner SolGold (SOLG), which is bringing on what it believes will be a massive new copper deposit in Ecuador at Cascabel, says the world must face up to the issues facing a growing imbalance between supply and demand of copper.

Cuzzubbo said there are short-term and long-term issues for the supply of metals. He said that as much as possible traders should look past the short-term issues and focus on the longer term facts facing the markets.

With the electrification of the world, copper will be in heavy demand causing a severe shortage of the metal. The world, he said, needs seven more mines the size of Escondida in the next decade, just to stand still.

Production of gold also falling short

Antofagasta (ANTO) is another miner that has shot a warning sign across the markets. It has seen its shares tumble as it reported that its first quarter (Q1) production of gold, copper and molybdenum all dropped significantly.

Copper output was down by 41% compared to three months earlier on the back of an ongoing drought at Los Pelambres in Chile and lower grades at Centinela.

One bit of good news is that ANTO says copper production is expected to rise quarter-on-quarter through the year, while rising metal prices have helped revenues.

‘Challenging’ environment for major commodities

Finally, Anglo American (AAL) has downgraded its FY production guidance for its delivery of major commodities and indicated that its Q1 performance was "challenging".

AAL said copper production declined by 13% to 140,000 tonnes for the first quarter ended March, from 160,000 tonnes in the same quarter last year due to planned lower grades. But, like Antofagasta, Anglo American has maintained its 2022 copper production guidance.

Another drag was iron ore production which fell by 19% year-on-year as high rainfall and plant and machinery issues affected output.


This information has been prepared by IG, a trading name of IG Markets Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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