By Rhiannon Hoyle
SYDNEY--Several of Australia's biggest mining companies are
intensifying cutbacks by axing dividends to investors, in a move
that underscores how few in the industry expect global commodities
demand to recover any time soon.
Whitehaven Coal Ltd. (WHC.AU) and nickel producer Western Areas
Ltd. (WSA.AU) on Tuesday became the latest companies to suspend
payouts to shareholders after both swung to an annual loss in the
year through June, hurt by sharply lower commodity prices as
China's economy cools.
Mining companies are aggressively slashing costs to protect
profits, laying off thousands of workers and freezing spending on
major projects earmarked to meet future Asian demand for resources.
The deepening of the slowdown poses a risk to Australia's economy,
which sidestepped the financial crisis in 2008 largely due to the
strength of its mining industry. According to the government,
economic growth in the current financial year will likely fall
below historical trends while unemployment is tipped to rise.
"The market can be pretty harsh on any company that breaks its
dividend stream," said Sydney-based John Payne, who manages a
global resources fund for AMP Capital. "But at the end of the day,
a dividend should only be paid if a company can afford it. You
don't want to be paying it out of debt."
Shares in Western Areas, Australia's third-largest nickel
producer, fell 10% after the company suspended its dividend for a
year in which nickel prices plunged to their lowest level since
2009. Falling Chinese demand for the industrial metal used to make
stainless steel, and rising supply from new mines, have weighed
heavily on prices.
Whitehaven Coal said it didn't expect any improvement in coal
prices over the coming year, as supply from new mines coming online
alongside weak demand in Europe and the U.S. exceeds higher Asian
imports.
Prices of coking coal, used to make steel, and thermal coal
that's burnt to generate power have fallen 34% and 7%,
respectively, since the end of June last year. Sydney-based
Whitehaven, whose market value has halved over the same period,
said the impact of persistent weakness in coal prices on its
earnings prompted its board not to pay a final dividend.
"Our expectation is that we will pay a dividend" in future, said
Paul Flynn, Whitehaven's chief executive. "But our policy states we
must be making profits to pay a dividend."
Other companies have taken similar action. Australia's largest
listed gold miner, Newcrest Mining Ltd. (NCM.AU), scrapped its
dividend earlier this month as it looked to conserve cash at a time
when investors were losing faith in gold as a so-called safe-haven
asset.
Newcrest, worth more than A$10.5 billion, made the move after
reporting the biggest annual loss in its history.
Once the darlings of stock markets around the world, gold miners
have been hurt by a steep slide in the price of the precious metal
since the start of the year. The sudden halt to a decadelong
bull-run in the gold market has led many mining companies to slash
spending, close mines, lay off workers and scale back executive
pay.
Cuts to company dividends aren't confined to Australia.
U.K.-listed miner Kazakhmys PLC (KAZ.LN) last week canceled its
interim dividend, citing an uncertain economic outlook, weak cash
flow and the need to prioritize spending on existing
operations.
Some mining-services firms have also had to suspend payouts to
shareholders, as they try to cope with the sharp slowdown in
investment. Boart Longyear Ltd. (BLY.AU), the world's biggest
provider of drilling services for the mining sector, Monday said it
wouldn't pay an interim dividend as it described trading conditions
as the worst since the global financial crisis.
AMP's Mr. Payne said he expected miners to start reinstating
their dividends from next year, as commodity prices stabilize and
balance sheets strengthen.
"The market is going to be far more discerning as to whether
these companies are even attractive if they aren't getting a proper
return," he said. "The question is how quickly the market starts
voting with its feet if it thinks these companies are just pouring
money into the ground."
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
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