Cash is king as global miners get set to boost payouts

Tue Feb 11, 2014 2:18am EST
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By Sonali Paul and Silvia Antonioli

MELBOURNE/LONDON (Reuters) - Aggressive cost cutting, volume growth and stable commodity prices will drive a rise in half-year profits for the world's biggest miners, paving the way for healthy dividend hikes now and anticipated capital returns in 2015.

The latest round of results could tempt investors back into the sector, analysts say, after steering clear amid fears of cooling growth in China and a yet-to-occur slump in iron ore prices.

Top miners BHP Billiton (BHP.AX: Quote)(BLT.L: Quote), Rio Tinto (RIO.AX: Quote)(RIO.L: Quote) and Brazil's Vale (VALE5.SA: Quote) are expected to book solid growth in cash flows, having slammed the brakes on building new mines 18 months ago and embarked instead on massive cost cuts and debt repayments.

"Cash flows have been negative because they've been spending on projects and developments. You want to start to see a sign that that's starting to reverse," said Darko Kuzmanovic, a portfolio manager at Caledonia Investments in Sydney.

"Hopefully that's the catalyst for people to be more comfortable with these names and start thinking about investing in them, because they don't look particularly expensive."

Expectations are growing that Rio Tinto, the first of the big five miners to report, will come up with the fattest dividend increase, as the company has said it would beat its target for $2 billion in cost cuts.

The most bullish analysts are looking for a 15 percent rise in Rio Tinto's annual dividend to $1.92, compared with the consensus view for 8 percent growth to $1.81.

"In our view the company has leapfrogged the peer group to become the most shareholder friendly company of the large miners," Credit Suisse said in a February 3 note.   Continued...

A promotional sign adorns a stage at a BHP Billiton function in central Sydney August 20, 2013. REUTERS/David Gray