vk.com/id446425943
Yields should compensate for limited lives
Chart below compares spot FCF yields with yields required for a 10% IRR for each miner. Many diversified miners generate estimated spot FCF yields well in excess of what is required to achieve a 10% IRR, even considering their limited lives.
Renaissance Capital
1 April 2019
Metals & Mining
Figure 46: FCF yield at spot prices with required return for a 10% IRR
%
40%
35%
30%
25%
20%
15%
10%
5%
0% -5% -10%
37% |
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FCF Yield |
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Required return for a 10% IRR |
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32% |
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21% |
20% |
19% |
17% |
15% |
14% |
13% |
12% |
12% |
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12% |
12% |
12% |
11% |
11% |
11% |
10% |
10% |
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10% |
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10% |
9% |
9% |
9% |
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8% |
8% |
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7% |
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1% |
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-3% |
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Lonmin |
Fortescue |
ARM |
Rusal |
Kumba |
Impala |
Alrosa |
BHP |
Harmony |
Diversified* |
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Vale |
Sibanye |
Exxaro |
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Polyus |
Assore |
Anglo |
Rio Tinto |
Northam |
Gold* |
South32 |
Gold Fields |
Platinum* |
Norilsk |
AngloGold |
Polymetal |
Glencore |
Amplats |
Sasol |
RBPlats |
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Note: Priced as at market close on 26 March 2019 * Industry average (market cap weighted)
Source: Company data, Thomson Reuters, Renaissance Capital estimates
Some mining companies estimated mid-cycle FCF yields are also still in excess of what is required for a 10% IRR, which makes them attractively valued.
Figure 47: FCF yield at mid-cycle prices with required return for a 10% IRR
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35% |
30%+ |
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30% |
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25% |
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18% |
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20% |
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15% |
14% |
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15% |
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13% |
12% |
12% |
12% |
11% |
11% |
11% |
10% |
10% |
10% |
10% |
10% |
10% |
10% |
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% |
10% |
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9% |
8% |
8% |
8% |
8% |
8% |
8% |
7% |
7% |
5% |
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5% |
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0% |
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-5% |
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-10% |
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-15% |
Rusal |
Sibanye |
ARM |
Vale |
Norilsk |
Glencore |
Alrosa |
Assore |
Exxaro |
Polyus |
Diversified* |
Gold* |
Harmony |
Fortescue |
Anglo |
Sasol |
Polymetal |
Gold Fields |
Northam |
Impala |
AngloGold |
Rio Tinto |
BHP |
South32 |
Kumba |
Platinum* |
Amplats |
RBPlats |
Lonmin-10%+ |
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Note: Priced as at market close on 26 March 2019 * Industry average (market cap weighted)
Source: Company data, Thomson Reuters, Renaissance Capital estimates
26