Citi expects upbeat earnings reports from Mining sector

UNITED STATES January 17 2017 11:13 PM

LONDON (Scrap Register): The season is approaching when mining companies release their quarterly and 2016 full-year earnings reports, and this is typically a time when mining stocks do well, reports Citi Research.

“After enjoying a strong price performance in 2016, it's report-card time for mining companies,” Citi said. “We believe the reporting season would inject further positivity into the market through positive management commentary, improved balance sheets, strong cash generation, and continued delivery on cost control programs. Miners have historically performed well around FY (fiscal year) reporting, with only four years of negative February returns in two decades.” 

Aside from macroeconomic issues, Citi looks for these themes to be at the forefront during earnings season: an uptick in projects and exploration activities though companies are likely to be relatively cautious on capital allocation; catch-up in sustaining capital expenditures, which could have been compromised during the five-year downturn; potential cost inflation, especially due to oil and also labor negotiations, particularly in Chile; retention rate of cost savings program; potential for excess capital return with improved balance sheets and appetite for mergers and acquisitions; and revised strategies, especially around divestment targets.