When the going gets tough, the tough want cash flow. In the resources sector, investors are more likely to find that in mining than in oil and gas.
Both industries have struggled as prices of commodities have tumbled. Oil’s recent comeback appears to have run its course. Weak economic signals from China will weigh on commodities from metals to iron ore. And miners and drillers now sing the same tune: Spending restraint, cost-cutting and preservation of cash flows are the order of the day.
But the miners got there first, and it shows.
Miners started cutting capital expenditures and shelving ambitious projects back in 2012, a shift that was followed by a change of management at big companies including BHP Billiton, Rio Tinto and Anglo American. Even before the price of iron ore collapsed, investors objected that the fruits of China’s rapacious demand for commodities had been squandered on multibillion-dollar growth plans and ill-conceived deals.
At oil-and-gas companies, helped by a crude price that stayed stable at about $110 a barrel until last June, the same message took longer to get through. BP shed assets and put the brakes on spending, but only after the 2010 Macondo disaster. France’s Total in mid-2013 pledged greater spending discipline to investors who, again, felt the rewards of high oil prices had been wasted. Exxon Mobil and Chevron, while they have cut budgets, are still investing north of $30 billion a year each.
The Wall Street Journal