Mixed picture in the mining sector

As the big UK-listed mining companies take their turn to report production figures, we get a chance to draw some conclusions about the health of the sector and the global economy.

Today, Anglo American becomes the latest major commodities firm to issue a production update. Unfortunately, the picture from this somewhat troubled firm is not as inspiring as that presented by its cousins BHP Billiton and Rio Tinto.

Anglo American saw copper, platinum and diamond output rise, but iron ore, coal and nickel were all down. The company is still dogged by industrial action in South Africa, which – despite the output rise – has hit platinum output. Their situation does not contrast well with BHP Billiton and Rio Tinto; the former is seeing a rise in production in all its operations, while the latter has recently enjoyed record iron ore output.

Sentiment towards Anglo American among IG clients is still bearish, with clients expecting further declines in all time frames:

IG clients' trading activity for Anglo American
IG clients' trading activity for Anglo American

With the shares down by nearly 30% this year, it looks as if the company’s troubles are not yet over. Meanwhile, both BHP Billiton and Rio Tinto look to be in better shape, with their losses for the year being a more modest 12.6% and 17% respectively.

There may be signs of a pick-up in the platinum market, however, as supply concerns take hold. Exchange-traded products in platinum (and its sister metal, palladium) are on the rise, while the production problems in South Africa will mean that upward pressure is put on prices.

In general, the outlook for miners still looks less optimistic, even if Chinese growth is in line with expectations. On simple PE ratios, both Rio Tinto and BHP Billiton look almost ridiculously undervalued, with the ratios both in single figures. However, that is an indication that investors are still cautious about the outlook. With the Fed still leaning towards a tapering in the latter part of this year, this caution may well be justified.

Anglo American chart

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