London shares rallied today but two of the FTSE 100’s mining giants warned of more turmoil to come as their profits were savaged by tumbling commodity prices.
The blue-chip benchmark roared back past 6000 with a 2.7% gain, reclaiming some of the ground given up on “Black Monday” in a traumatic day for global shares. Major European markets also rallied despite more losses in Asia overnight.
But the dramatic declines in commodity markets this year left deep scars on the results of BHP Billiton and Chilean copper miner Antofagasta, both eyeing nervously the potential for further disruption from China, the world’s second-biggest economy.
BHP Billiton posted its worst results since 2004 as underlying profits sank by 52% to $6.42 billion (£4.1 billion) for the year to June.
Sliding iron ore, copper, coal and oil prices did the damage as well as writedowns on shale-oil assets previously flagged up.
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The miner is also slashing capital spending to $7 billion by 2017 to protect the dividend.
BHP boss Andrew Mackenzie said China is likely to create more tremors as Beijing tries to shift the economy towards consumer spending rather than investment, as well as liberalising its currency.
“In the short term we expect ongoing economic reforms in China to contribute to periods of market volatility,” he said, and remains “confident” in long-term commodity markets but cut estimates of China’s peak steel demand.
49%
Antofagasta's profit decline
Antofagasta also saw underlying profits slump 49% to $562 million in the first half of 2015 as its fortunes were tied to a copper price currently languishing near six-year lows.
Chief executive Diego Hernandez is targeting $160 million in savings, saying: “Good-quality assets and tight capital discipline means we can weather the current downturn and maintain our competitive position in this challenging environment.”
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Both Antofagasta and BHP’s shares were lifted higher — up 3% and 6% respectively — in the wider market rally despite the poor profits performance, which were described as “ugly” by one City analyst.
CMC Markets’ head of sales trading, Matt Basi, said: “This looks like institutional buying because our clients are largely sitting on the sidelines.
“Institutions can buy with a six-month view but our customers are rightly cautious about getting into this market and then getting burned by a 500-point swing.”