Tag: Iron

Investment Thesis

• One of the largest miners in the world with a competitive cost structure.
• Tier 1 assets globally, which are difficult to replicate. 
• Highly cash generative assets with attractive free cash flow profile. 
• Shareholder return focused – ongoing capital management initiatives.  
• Commodities price surprises on the upside (potential China stimulus to combat Coronavirus impact). 
• Strong balance sheet position.
• Electrification and light-weighting trends in the automobile industry provide long-term growth runway for aluminum demand.

Key Risks

• Further deterioration in global macroeconomic conditions.
• Deterioration in global iron ore/aluminum supply & demand equation.
• Production delay or unscheduled site shutdown.
• Natural disasters such as Tropical Cyclone Veronica.
• Unfavorable movements in AUD/USD.
• Company not achieving its productivity gain targets. 

Key Highlights 

• Revenue of $29,775m, down -10%. 
• Underlying EBITDA of $15,597m, down -26%.  
• Free cash flow of $7,146m, down -30%.
• The Board declared a dividend of 276cps, down -29% and no special dividend (relative to 185cps in the pcp). This equated to 50% of underlying earnings, in line with RIO’s shareholder returns policy, and consistent with the Company’s policy of paying out 50% on the ordinary interim dividend.
• Iron ore: Underlying EBITDA of $10.4bn was 35% lower, due to lower prices ($5.7bn), following the 26% decline in the monthly average Platts index for 62% iron fines adjusted to an FOB basis. Higher cash costs were offset by increased sales portside in China. 
• Aluminum: Underlying EBITDA of $2.9866bn, was up +49%, due to higher product premiums for primary metal and a stronger pricing environment for primary metal and alumina; however according to management, this was partly offset by higher input costs for key materials such as caustic soda, coke, pitch and anodes, leading to an increase in cash costs for alumina and primary metal.
• Copper: Underlying EBITDA fell -27% to $1.487m on lower refined copper at Kennecott and by product sales volumes, particularly lower gold in concentrate at Oyu Tolgoi, consequently resulting in associated fixed cost inefficiencies. 
• Minerals: Underlying EBITDA of $1.259m was -10% lower due to higher cash costs, energy price increases and lower volumes, partially offset by higher EBITDA in relation to the increased ownership in Diavik. 

Company Description

Rio Tinto Limited (RIO) is an international mining company with operations in Australia, Africa, the Americas, Europe and Asia. RIO has interests in mining for aluminum, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock and diamonds.  

(Source: Banyantree)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy & Outlook:    

BlueScope’s strategy appropriately plays to its strengths and attempts to neutralize its weaknesses within its portfolio of legacy assets. Steel manufacturers produce largely undifferentiated products and have limited pricing power. Maintainable competitive advantage is typically generated by being the lowest cost provider. BlueScope’s Australian business operates at a relatively high cost and struggles to compete in highly competitive export markets. North Star is significantly more entrenched and operates toward the low end of the cost curve. 

Over the past decade, BlueScope sensibly restructured Australian operations away from commodity export markets where the relatively high cost of production places it at a competitive disadvantage. The Australian operations are now tailored to the domestic market with a focus on shifting its sales mix to its value-add metal coated and painted product brands. The group’s Ohio-based North Star operations are the business’ crown-jewel. North Star specializes in the production of hot rolled coil for the U.S. domestic market and utilizes highly efficient electric arc furnaces which can produce at a lower per unit cost than blast furnace competitors. BlueScope has gradually expanded production capacity at North Star over time to maximize the value of its operations. BlueScope is taking appropriate actions to manage its environmental, social, and governance risks. BlueScope is proactively investing in technologies to limit the carbon intensity of its steelmaking operations and has committed to a net zero emissions target by 2050.

Financial Strengths:  

BlueScope has a strong balance sheet. As at the end of the first half of fiscal 2022, BlueScope’s net cash position was approximately AUD 700 million (including operating leases) and had approximately AUD 2.7 billion in undrawn debt facilities. BlueScope’s balance sheet will be put to work over the next few years to fund a range of initiatives across Port Kembla, North Star, the U.S. buildings segment, and acquiring the coil coatings business from Cornerstone Building Brands. BlueScope is also strategically investing in sustainability programs associated with its commitment to net zero emissions by 2050. Longer term, BlueScope is targeting a relatively conservative net debt position of around AUD 400 million with at least 50% of free cash flows distributed to shareholders in the form of dividends and share buybacks.

Bulls Say: 

• Supply side reform in China will reduce industry overcapacity and act to boost steelmaking spreads and operating margins relative to depressed levels in the early 2010s.
• The strength of Australia’s residential construction market will aid in shifting the Australian segment’s sales mix to value-added products in the near term.
• Fiscal stimulus programs enacted during the coronavirus pandemic will support demand for steel products over the near term.

Company Description: 

BlueScope is an Australian-based steelmaking firm with five steel related business units. The Australian Steel Products segment mainly specializes in a range of high-value coated and painted flat steel products for the domestic market. North Star is the group’s U.S. mini-mill specializing in the production of hot rolled coil for the U.S. construction and automotive sectors. Building Products Asia and North America comprise operations across Southeast Asia, China, India, and the U.S. West Coast involved in metal-coating, painting, and roll-forming. New Zealand Steel and the Pacific Islands business has steel operations across New Zealand and the Pacific. The Buildings North America segment specializes in nonresidential buildings, including materials manufacturing and support services.

(Source: Morningstar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.

The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice.

The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities.

Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and are not liable for any unintentional errors in the document.

The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy and Outlook 

BHP Group is the world’s largest publicly traded mining conglomerate and positioned at the centre of the China boom. The company correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification, relative to its mining peers. BHP produces a range of commodities and is a major producer of iron ore, copper, and metallurgical coal. Exposure to conventional oil and gas ended with the spinoff and subsequent merger with Woodside in 2022. The onshore U.S. shale assets were divested in 2018. Much of the company’s operations are in Australia, particularly the low-cost iron ore business. Many of BHP’s assets are located close to key Asian markets, particularly iron ore and metallurgical coal, which provides a modest freight cost advantage relative to peers. 

Commodity demand is tied to global economic growth, China in particular. China is BHP’s largest customer, accounting for more than 65% of total sales in fiscal 2021. With demand for most products likely to soften with the end of the China boom, and BHP’s fiscal 2021-22 earnings back near the fiscal 2011-12 peak, the outlook is for earnings to materially decline, with iron ore the likely key driver. The good times saw significant capital expenditure, notably on iron ore and onshore U.S. shale gas and oil. Overinvestment in the boom diluted returns to the point where long-term excess returns are unlikely. Structurally lower earnings with the demise of the China boom peaks means it is expected that midcycle returns on adjusted invested capital, after adding back the impairments and write-downs, to be close to the cost of capital. Ignoring the cumulative impairments and write-downs, returns to modestly excess the cost of capital by mid cycle.

Financial Strength

BHP is in a strong financial position. With ongoing debt repayment, modest near-term capital requirements and the fortuitous bounce in commodity prices since 2016, BHP’s financial position is strong. For the five years ended fiscal 2026, the net debt/EBITDA remains to be below 0.5 and EBIT/net interest to average more than 30. Net debt at end-June 2021 was about USD 4 billion, below BHP’s net debt target range of USD 12 billion to USD 17 billion. Given the limited capital expenditure requirements, with only modest commitments to new expenditure in the lower demand growth environment, BHP’s balance sheet remains strong with excess cash flow to be returned to shareholders. Share buybacks and special dividends are possible, depending on the level of commodity prices, given the relatively modest outlook for capital expenditure. The likelihood of special dividends and buybacks would decline if BHP chose to pursue acquisitions.

Bulls Say’s

• BHP is a beneficiary of continued global economic growth and demand for the commodities it produces. 

• The company’s cash flow base is diversified and is less susceptible to the vagaries of the market than single-commodity producers. 

• BHP’s iron ore assets are industry-leading. The company remains well placed to continue low-cost production and increase output with minimal expenditure and an efficiency focus.

Company Profile 

BHP is a leading global diversified miner supplying iron ore, copper, oil, gas, and metallurgical. The merger of BHP Limited (now BHP Ltd.) and Billiton PLC (now BHP PLC) created the present-day BHP. Shareholders in each company have equivalent economic and voting rights in BHP as a whole and in 2022 voted to reunify the dual listed structure. Major assets include Pilbara iron ore, Queensland coking coal, Escondida copper and conventional petroleum assets, principally in Australia and the Gulf of Mexico. Onshore U.S. oil and gas assets were sold in 2018 and the remaining Petroleum assets are likely to be spun off and merged with Woodside.

(Source: MorningStar)

DISCLAIMER for General Advice: (This document is for general advice only).

This document is provided by Laverne Securities Pty Ltd T/as Laverne Investing. Laverne Securities Pty Ltd, CAR 001269781 of Laverne Capital Pty Ltd AFSL No. 482937.The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts. This document does not purport to contain all the information that a prospective investor may require.  The material contained in this document does not take into consideration an investor’s objectives, financial situation or needs. Before acting on the advice, investors should consider the appropriateness of the advice, having regard to the investor’s objectives, financial situation, and needs. The material contained in this document is for sales purposes. The material contained in this document is for information purposes only and is not an offer, solicitation or recommendation with respect to the subscription for, purchase or sale of securities or financial products and neither or anything in it shall form the basis of any contract or commitment. This document should not be regarded by recipients as a substitute for the exercise of their own judgment and recipients should seek independent advice. The material in this document has been obtained from sources believed to be true but neither Laverne and Banyan Tree nor its associates make any recommendation or warranty concerning the accuracy or reliability or completeness of the information or the performance of the companies referred to in this document. Past performance is not indicative of future performance. Any opinions and or recommendations expressed in this material are subject to change without notice and, Laverne and Banyan Tree are not under any obligation to update or keep current the information contained herein. References made to third parties are based on information believed to be reliable but are not guaranteed as being accurate.

Laverne and Banyan Tree and its respective officers may have an interest in the securities or derivatives of any entities referred to in this material. Laverne and Banyan Tree do and seek to do, business with companies that are the subject of its research reports. The analyst(s) hereby certify that all the views expressed in this report accurately reflect their personal views about the subject investment theme and/or company securities. Although every attempt has been made to verify the accuracy of the information contained in the document, liability for any errors or omissions (except any statutory liability which cannot be excluded) is specifically excluded by Laverne and Banyan Tree, its associates, officers, directors, employees, and agents.  Except for any liability which cannot be excluded, Laverne and Banyan Tree, its directors, employees and agents accept no liability or responsibility for any loss or damage of any kind, direct or indirect, arising out of the use of all or any part of this material.  Recipients of this document agree in advance that Laverne and Banyan Tree are not liable to recipients in any matters whatsoever otherwise; recipients should disregard, destroy or delete this document. All information is correct at the time of publication. Laverne and Banyan Tree do not guarantee reliability and accuracy of the material contained in this document and is not liable for any unintentional errors in the document. The securities of any company(ies) mentioned in this document may not be eligible for sale in all jurisdictions or to all categories of investors. This document is provided to the recipient only and is not to be distributed to third parties without the prior consent of Laverne and Banyan Tree.

Business Strategy and Outlook

Rio Tinto is one of the world’s biggest miners, along with BHP Billiton, Brazil’s Vale, and U.K.-based Anglo American. Above-average assets relative to peers mean Rio Tinto is one of few miners profitable through the commodity cycle. Most revenue comes from operations located in the relatively safe havens of Australia, North America, and Europe, though the company has operations spanning six continents. By customer, Rio Tinto’s largest customer by far is China. 

Rio Tinto has a large portfolio of long-lived assets with low operating costs. Operations include aluminium, copper, diamonds, gold, iron ore and industrial minerals. The invested capital base was inflated by substantial procyclical investment during the height of the China boom, including overpaying for Alcan, and the subsequent iron ore expansion; the combination of these factors means midcycle returns are likely to remain below the cost of capital. 

The recent focus has been to run a strong balance sheet, tightly control investments and return cash to shareholders. The company’s major expansion projects are Amrun bauxite, the Oyu Tolgoi underground mine, and the expansion of the Pilbara iron ore system’s capacity from 330 million tonnes in 2019 to 360 million tonnes. Those projects are expected to complete in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs. As a commodity producer, Rio Tinto is a price-taker. The lack of pricing power reflects in cyclical commodity prices. Rio Tinto lacks a moat, given the bloated invested capital base dilutes returns on invested capital. The firm’s assets are large, however, and despite being overcapitalised, generally have low operating costs.

Financial Strength

Rio Tinto’s balance sheet is strong with net cash of more than USD 3 billion at end June 2021. Net debt/EBITDA is forecasted to remain at close to zero through the forecast period, in the absence of a large acquisition, which is not anticipated. The strong balance sheet may allow the company to make targeted investments or acquisitions through the downturn, important flexibility. But it appears management is favouring distributions  to shareholders. The progressive dividend policy was canned in 2016, providing important flexibility to increase or reduce dividends as free cash flow allows. Barring a major spending spree, which appears unlikely, that strong balance sheet is projected  to continue in the future.

Bulls Say’s

• Rio Tinto is one of the direct beneficiaries of China’s strong appetite for natural resources. 
• The company’s operations are generally well run, large-scale, low-operating-cost assets. Mine life is generally long, and some assets, such as iron ore, have incremental expansion options. 
• Capital allocation is has improved following the missteps of the China boom with management generally preferring to return cash to shareholders than to make material expansions or acquisitions.

Company Profile 

Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Iron ore is the dominant commodity, with significantly lesser contributions from aluminium, copper, diamonds, gold, and industrial minerals. The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Business Strategy and Outlook

Rio Tinto is one of the world’s biggest miners, along with BHP Billiton, Brazil’s Vale, and U.K.-based Anglo American. Above-average assets relative to peers mean Rio Tinto is one of few miners profitable through the commodity cycle. Most revenue comes from operations located in the relatively safe havens of Australia, North America, and Europe, though the company has operations spanning six continents. By customer, Rio Tinto’s largest customer by far is China. 

Rio Tinto has a large portfolio of long-lived assets with low operating costs. Operations include aluminium, copper, diamonds, gold, iron ore and industrial minerals. The invested capital base was inflated by substantial procyclical investment during the height of the China boom, including overpaying for Alcan, and the subsequent iron ore expansion; the combination of these factors means midcycle returns are likely to remain below the cost of capital. 

The recent focus has been to run a strong balance sheet, tightly control investments and return cash to shareholders. The company’s major expansion projects are Amrun bauxite, the Oyu Tolgoi underground mine, and the expansion of the Pilbara iron ore system’s capacity from 330 million tonnes in 2019 to 360 million tonnes. Those projects are expected to complete in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs. As a commodity producer, Rio Tinto is a price-taker. The lack of pricing power reflects in cyclical commodity prices. Rio Tinto lacks a moat, given the bloated invested capital base dilutes returns on invested capital. The firm’s assets are large, however, and despite being overcapitalised, generally have low operating costs.

Financial Strength

Rio Tinto’s balance sheet is strong with net cash of more than USD 3 billion at end June 2021. Net debt/EBITDA is forecasted to remain at close to zero through the forecast period, in the absence of a large acquisition, which is not anticipated. The strong balance sheet may allow the company to make targeted investments or acquisitions through the downturn, important flexibility. But it appears management is favouring distributions  to shareholders. The progressive dividend policy was canned in 2016, providing important flexibility to increase or reduce dividends as free cash flow allows. Barring a major spending spree, which appears unlikely, that strong balance sheet is projected  to continue in the future.

Bulls Say’s

• Rio Tinto is one of the direct beneficiaries of China’s strong appetite for natural resources. 
• The company’s operations are generally well run, large-scale, low-operating-cost assets. Mine life is generally long, and some assets, such as iron ore, have incremental expansion options. 
• Capital allocation is has improved following the missteps of the China boom with management generally preferring to return cash to shareholders than to make material expansions or acquisitions.

Company Profile 

Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Iron ore is the dominant commodity, with significantly lesser contributions from aluminium, copper, diamonds, gold, and industrial minerals. The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights. 

(Source: MorningStar)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Business Strategy and Outlook

Pioneer Natural Resources is one of the largest Permian Basin oil and gas producers overall, and is the largest pure play. It has about 800,000 net acres in the play, all of which is located on the Midland Basin side where it believes it can get the best returns.That gives Pioneer an extensive runway of low-cost drilling opportunities primarily targeting the Wolfcamp A, Wolfcamp B, and Spraberry reservoirs. Like other Permian operators, Pioneer’s production is weighted toward liquids—over 80% of its output is crude oil and natural gas liquids, boosting unit revenue. By focusing on the most productive parts of the Permian, it is able to keep its unit costs well below the peer average. Getting into the basin early also means the firm also enjoys relatively low royalty rates, giving it a further advantage over many of its competitors. Pioneer has expanded fairly rapidly, with annual production growth averaging 10%-15% over the last decade or so. But the company is now prioritizing generous shareholder distributions ahead of further volume expansion. The current plan calls for no more than 5% annual growth while reinvesting much less than 100% of operating cash flows. The remaining surplus will be used to preserve Pioneer’s very impressive balance sheet, and to return cash to shareholders via a part-variable dividend.

Financial Strength

Pioneer’s leverage ratios were uncharacteristically high for much of 2021, owing to two substantial acquisitions (Parsley and DoublePoint). But the firm has been generating substantial free cash since then, and the subsequent divestiture of the Delaware Basin assets that were bundled with these acquisitions improved the firm’s balance sheet even further (with proceeds exceeding $3 billion). As a result, the firm now has one of the strongest balance sheets in the segment, with very low leverage ratios and at strip prices, the firm will reach zero net debt by the end of 2022.After the last reporting period, net debt/EBITDA was around 0.4 times and debt/capital is 23%. Management has mentioned a leverage ratio cap of 0.75 times, but really wants absolute debt to be as low as possible, or zero, so it can capitalize in cyclical downturns by aggressively buying back stock without worrying about the impact on the balance sheet.The firm has around $3 billion in maturities due between now and 2025, all of which can be comfortably funded from cash on hand or from operating cash flows (without compromising the firm’s ability to pay the fixed and variable components of its dividend). It has ample liquidity in reserve, too, with another $1.5 billion available on its undrawn credit facility.

Bulls Say  

• Pioneer’s low-cost Permian Basin activities are likely to generate substantial free cash flows in the years to come, assuming mid cycle prices ($55/bbl for WTI). 
• The firm intends to target a 10% total return for shareholders via its base dividend, a variable dividend with a payout of up to 75% of free cash flows, and 5% annual production growth. 
• Pioneer has a rock-solid balance sheet and is able to generate free cash flows even during periods of very weak commodity prices.

Company Profile

Headquartered in Irving, Texas, Pioneer Natural Resources is an independent oil and gas exploration and production company focusing on the Permian Basin in Texas. At year-end 2021, Pioneer’s proven reserves were 2.2 billion barrels of oil equivalent with net production for the year of 612 mboe per day. Oil and natural gas liquids represented 68% of production

(Source: Morningstar)

• Relative to the pcp: (1) 

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis 

• One of the largest miners in the world with a competitive cost structure.
• Tier 1 assets globally, which are difficult to replicate. 
• Highly cash generative assets with attractive free cash flow profile. 
• Shareholder return focused – ongoing capital management initiatives.  
• Commodities price surprises on the upside (potential China stimulus to combat Coronavirus impact). 
• Strong balance sheet position.
• Electrification and light-weighting trends in automobile industry provide long-term growth runway for aluminium demand.

Key Risks

• Further deterioration in global macro-economic conditions.
• Deterioration in global iron ore/aluminium supply & demand equation.
• Production delay or unscheduled site shutdown.
• Natural disasters such as Tropical Cyclone Veronica.
• Unfavourable movements in AUD/USD.
• Company not achieving its productivity gain targets. 

FY21 Results Highlights. Relative to the pcp: 

• $25.3bn net cash generated from operating activities was +60% higher than FY20 driven by higher prices for RIO’s key commodities. This flowed through to +88% YoY change in free cash flow of $17.7bn, despite a +19% increase in capex to $7.4bn. 
•  $21.1bn of net earnings, up +116%, mainly reflecting higher prices, the impact of closure provision increases at Energy Resources of Australia (ERA) and other non-operating sites, $0.5bn of exchange and derivative gains and $0.2bn of impairments. $7.4bn capex was made of $0.6bn of growth capital, $3.3bn of replacement capital and $3.5bn of sustaining capital, funded from internal sources, except for Oyu Tolgoi underground development, which is project finance. 
• $37.7bn underlying EBITDA was up +58% on a margin of 57%. 
•  $21.4bn underlying earnings (or underlying EPS of US1,321.1cps) were up +72%. 
•  RIO retained a strong balance sheet with $1.6bn of net cash at FY21-end, versus net debt of $0.7bn at the start of the year, reflecting the free cash flow of $17.7bn, partly offset by $15.4bn of cash returns to shareholders. 
•  The Board declared a record $6.7bn final ordinary dividend (or US417cps) and $1.0bn final special dividend (or US62cps). This brings the full-year dividend to $16.8bn, equivalent to US1,040cps and 79% of underlying earnings.

Company Profile

Rio Tinto Limited (RIO) is an international mining company with operations in Australia, Africa, the Americas, Europe and Asia. RIO has interests in mining for aluminium, borax, coal, copper, gold, iron ore, lead, silver, tin, uranium, zinc, titanium dioxide feedstock and diamonds. 

• FY21 Results Highligh

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.

Investment Thesis

• Macro conditions remain uncertain in key regions.
• Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk. 
• Solid balance sheet position provides some flexibility to the Company to pursue growth. 
• Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
• Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
• Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.

Key Risks

• Macro conditions remain uncertain in key regions.
• Strong pipeline of infrastructure projects over the next 2 years is a positive but timing and execution is a risk. 
• Solid balance sheet position provides some flexibility to the Company to pursue growth. 
• Leading positions as a lime producer, concrete products producer and cement and clinker supplier.
• Outlook for lime looks relatively positive with higher infrastructure projects and resource sector activity
• Cost-out and vertical integration (cement) programs expected to deliver cost benefits that exceed cost headwinds of $10m in FY21.

FY21 results summary: Compared to pcp: 

• Revenue increased +8% to $1,569.2m with increased sales volumes experienced for all products other than lime (as a result of lower Alcoa volumes) and strong cement pricing, partially offset by lower average prices for lime amid pricing resets across key alumina contracts. 
• EBITDA margin declined -120bps to 17.5% and included Covid-19 impacts and interrupted production, much of which are expected to be non-recurring (non-recurring impacts were $16.2m with management expecting $10.3m of these to be non-recurring, with higher demurrage and pallet costs expected to continue in the short term). 
• Net finance cost declined -6%, as a result of lower average borrowings which saw interest cover improve +1.1x to 14.4x. 
• Operating cash flow declined -23.8% to $195.2m, in line with expectations, as pcp benefited from tax refunds. 
• Capex increased +3% to $140.5m million ($106m million stay-in-business capex + $34.5m for development). 
• Joint Ventures earnings contribution increased +23.8% to $33.3m, with Sunstate’s contribution improving by +115% driven by strong demand across the southeast Queensland construction sector, ICL increasing earnings contribution by +13% and Mawsons increasing earnings contributions by +23%. 

Capital management

• Strong balance sheet with liquidity of $453.7m (down -13.6% over pcp) and net debt of $437.4m (up +17.5% over pcp), representing a leverage ratio of 1.6x underlying EBITDA (vs 1.4x in pcp) and gearing of 34.5% (up +400bps over pcp), both well within banking covenants and Board’s capital management target range. 
•  Return on Funds Employed (ROFE) declined -30bps over pcp to 10.6%, however, remained above cost of capital (normalising for Covid-19 and operational non-recurring costs of $16.2m, ROFE increased to 11.6%), with management expecting long-term ROFE improvement coming from Kwinana Upgrade project cost savings, development of downstream land investments and ongoing cost-out. 
• The Board declared fully franked final ordinary dividend of 7cps (down -3.45% over pcp), bringing full year total to 12.5cps, up +4.2% over pcp and representing a payout ratio of 68.5% of underlying earnings, within the Board’s target range of 65-75%. 

Cost savings above target

Management remains focused on their cost reduction program, delivering gross savings of $26.1m through operational efficiencies, procurement, and a more simplified organisational structure, equating to net cost out of $13.6m, +36% higher than expected.

Company Profile

Adbri Ltd (ABC) is an Australia listed construction materials and liming producing company. ABC is Australia’s leading (1) lime producer in the minerals processing industry; (2) concrete products producer; and (3) cement and clinker importer. ABC is Australia’s number two cement and clinker supplier to the Australian construction industry and number four concrete and aggregates producer.

(Source: Banyantree)

General Advice Warning

Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.