BHP and Glencore set for cash return
Shareholders in two of the world’s largest mining companies could hear this week when surplus capital will be returned to them, in what would mark a milestone in the sector’s recovery from a period of ill-judged spending and poor returns. BHP Billiton, the world’s largest mining group by market capitalisation which is considering a spin-off of unwanted assets, will unveil annual results that could determine whether it implements a share buyback, a tool it last used in 2011. Glencore, the commodities trader that is also among the world’s largest miners, may also return cash to investors, according to some analysts. The Swiss-based group recently received more than $6bn from the sale of Las Bambas, a copper mine being built in Peru. A promise to return capital through either share buybacks or special dividends would signal to investors that global diversified mining houses expect a big increase in their free cash flow and are planning only relatively modest capital spending on new projects. That contrasts with recent years when miners benefited from high commodity prices but splurged large amounts of cash in chasing growth. Many shareholders are angry that they did not get a higher share of profits from the commodities boom and have urged a more disciplined approach from miners, many of which have also changed leadership in the past two years. "An announcement of a return of capital [from BHP or Glencore] would be an important moment for the mining sector, said Rob Clifford, analyst at Deutsche Bank. "Shareholders have been pressing for better returns and this is the first time the largest miners have been in a position to deliver since commodity prices have retraced and capital has been reined in." Mr Clifford said BHP was likely to announce a share buyback in the order of at least $3bn, and said Glencore could also signal a capital return when it announces half-year results on Wednesday. Neither company has committed itself to announcing a capital return. While BHP is considered more likely to do so, some analysts still think weaker commodity prices this year – particularly for iron ore – could force the Anglo-Australian miner to put its plans on ice. "On our forecasts, we do not expect BHP to have excess cash to be able to announce any capital management with the annual results," said analysts at Commonwealth Bank of Australia in a report. A further complication could be BHP’s plan to list a cluster of non-core assets in a separate vehicle. This could be announced this week after the miner said on Friday that its board would consider a demerger plan imminently. Depending on how BHP implemented a demerger, it could reduce the amount of capital available to be distributed via a buyback. Meanwhile Glencore has suggested it would devote some of the Las Bambas sale proceeds to cutting debt and to opportunities to grow. "Any surplus capital, subject to maintaining an efficient balance sheet . . . will be returned to shareholders, within an appropriate timeframe and structure," the group said this month. Menno Sanders, an analyst at Morgan Stanley in London, said there was a "very low probability of additional cash returns" from Glencore as either a special dividend or buy back.