AAL Anglo American Plc

TAKING THE PULSE: U.K.-listed mining companies are set to report solid earnings growth in 2010 due to robust demand from emerging markets and surging commodity prices.

Analysts expect some mining companies to return the excess, uncommitted cash generated from those profits to shareholders via special dividends or share buybacks while other mining companies are expected to plow their cashflows into aggressive organic growth strategies.

Mining companies spent most of 2009 slashing debt, cutting costs, and consolidating their business in order to weather the financial crisis and consequent economic slump.

In 2010, they changed tack, and reactivated their organic growth projects due to strong emerging market demand for raw materials and tight supplies caused by under investment in new capacity during the year after the financial crisis.

Iron ore, copper, gold, silver, platinum and tin all hit long-term price records in 2010 as urbanization and industrialization continued to propel growth in emerging economies such as China. Demand in developed economies such as the U.S. also improved, albeit at a much more subdued pace.

The combination of higher demand and tight raw material supplies prompted many analysts to revise their earnings estimates and forecast a return to pre-crisis levels of profitability seen two or three years ago. Rio Tinto, the world's second largest iron ore miner, is forecast to announce record underlying earnings of $14.06 billion in 2010, according to a company consensus forecast of 23 analysts, surpassing a previous record of $10.30 billion set in 2008.

COMPANIES TO WATCH:

Xstrata (XTA.LN) - FY10 Feb. 8

MARKET EXPECTATIONS: Xstrata's underlying earnings before interest, taxes, depreciation, depreciation and amortization, or Ebitda, is expected to rise 49% to $10.14 billion compared with $6.79 billion a year before, according to a Factset poll of 10 analysts, due to strong performance across all its divisions, particularly copper, nickel and alloys. Net profit attributable to shareholders is forecast to rise more than seven-fold to $5.16 billion from $661 million. In 2009, net profit was hit by weak sales and high impairment charges.

MAIN FOCUS: Xstrata has a very aggressive organic growth plan to increase production volume 50% by 2014 and 80% by 2016. Analysts will be keeping an eye on the company's ability to deliver its growth pipeline and the degree to which Xstrata's coal output will be affected by heavy rain in Queensland, Australia. Analysts will also seek comment on whether Xstrata is bidding for Drummond Co's Colombian coal assets and whether Xstrata is interested in a tie-up with Glencore, its commercial partner and near 35% shareholder, if and when Glencore decides to list its shares publicly. Analysts believe Xstrata is waiting for a transparent way to value Glencore before considering a tie-up.

Rio Tinto PLC (RIO) - FY10 Feb. 10

MARKET EXPECTATIONS: Rio Tinto's underlying earnings are forecast to more than double to $14.06 billion in 2010 from $6.30 billion the year before, according to company consensus forecast of 23 analysts, primarily due to higher iron ore volume and prices.

MAIN FOCUS: Analysts will seek an update on the company's organic growth pipeline and how heavy rainfall in Australia's Queensland will impact coking coal output in the first quarter. They will also seek an update on how the company plans to use its excess cash. "With strong cash flow generation and a desire for 'piece-meal' sub-$10 billion M&A we see a solid case for a dividend hike and/or capital return," said Liberum Capital in a note. Analysts will also seek updates on Rio's Simandou iron ore project, its ongoing $3.9 billion bid for Mozambique coal miner Riversdale Mining Limited (RIV.AU) and Rio's plans to increase its indirect ownership in the Mongolian Oyu Tolgoi copper-gold project.

BHP Billiton Ltd (BHP) - 1H10/11 Feb. 16

MARKET EXPECTATIONS: BHP Billiton's underlying Ebitda is forecast to rise 71% to $18.58 billion in the first half of the fiscal year ending June 30, 2011 compared with $10.84 billion in the same period a year ago, according to a Dow Jones poll of five analysts. The rise is due to strong performance across all of its division, especially iron ore and base metals. Net income is forecast to rise 71% to $10.49 billion from $6.14 billion.

MAIN FOCUS: Analysts will seek an update on how heavy rainfall in Australia's Queensland province will impact coal output in the first quarter. Analysts will also seek an update on what the company plans to do with its massive cash pile after its failed $39 billion bid for Potash Corp of Saskatchewan Inc (POT). HSBC expects BHP will announce a new $15 billion to $20 billion share buy back program while Citigroup said a special dividend is also possible. Analysts will also seek any update on the likelihood for transformational acquisitions, possibly in the oil and gas sector.

Anglo American PLC (AAU.LN) - FY10 Feb. 18

MARKET EXPECTATIONS: Anglo American's underlying total operating profit is forecast to rise 93% to $9.55 billion from $4.96 billion, according to a company consensus forecast of 17 analysts, due to strong performance across all its divisions, especially iron ore and manganese, copper platinum, and diamonds. Underlying earnings per share is forecast to rise 88% to $4.02 from $2.14.

MAIN FOCUS: Analysts will focus on the execution of Anglo's three flagship projects--the Brazilian iron ore Minas Rio project, the Brazilian Barro Alto nickel project, and the Chilean Los Bronces expansion project, with a view to making sure that the projects are on time and within budget. Analysts will also seek an update on the company's non-core asset disposal program which includes the sale of its remaining Tarmac business, valued at $1.2 billion by HSBC.

-By Alex MacDonald, Dow Jones Newswires; 44 20 7842 9328; alex.macdonald@dowjones.com

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