8 December 2015                                                         

Commodity prices continue to fall, looking like they’d prefer to be back in the ground themselves and Anglo American (AAL) is the latest of the mining majors to capitulate and suspend dividends (H2 2015, 2016). Following hot on the heels of Glencore (GLEN) which is racing to cut debt and also decided to deprive loyal investors of income for a while, the question is whether we are set to see a rush of others doing the same to protect balance sheets in the face of tanking material prices and much reduced demand. With AAL and GLEN shares -70% YTD, is BHP Billiton (BLT), down 47% over the same period, next in the firing line? Already in the process of adjusting to the nasty result of years of overzealous investment (it was though that bullish music would be on loop for ever), cutting investment plans and abandoning/selling off less viable operations, could the stronger of the bunch now take advantage? Might they make the most of the fact that those in the weakest of positions have moved first, paving the way for them to follow suit in a ‘sector theme’ of permissible protectionism to weather the current sector glut? The first cuts are after all the deepest and most painful and are yields north of 5% for the likes of BP, RDS, BLT and RIO really justifiable with oil just about holding in the $40s and metals prices in the doldrums? Could further cuts/suspensions be on the cards?

Mike van Dulken, Head of Research