Beyond resilience: stress testing capital allocation Report

Insight 29 July 2024

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Report summary

The diversified miners are in a robust financial position having embedded conservative capital allocation strategies after the 2015 commodity price crash. They’ve introduced rigorous project approval processes and scrapped progressive dividends. Companies have expanded investment at a measured rate, but dividend payouts have been volatile. Has the balance moved too far from providing predictable investor returns? We stress-tested balance sheets for a bear market downturn. Most diversifieds are well-positioned to withstand a severe drop in commodity prices. In a 2015-style crash with prices falling 30% across the board, net gearing would remain below 40% for all but Glencore. Each company is unique, but all have options to attract broader shareholder attention: raise distributions, boost sustainability credentials and deliver growth organically or through M&A.

Executive summary
The 2014/2015 commodity price crash led to a shift in strategy
What would happen if commodity prices fell now?
The diversified miners have headroom to increase spending
- Forecast yields are unsustainable, higher payout ratios would bolster the outlook
- Greenfield project pipelines offer options, for some
- Decarbonisation investment as a low-risk capital allocation option
- Opportunities abound for the diversified miners

Tables and charts

This report includes 17 images and tables including:

Latest balance sheet metrics of the diversified miners
Combined net debt (US$ billion) and net gearing of the diversified miners
Combined adjusted EBITDA (US$ billion) and net leverage of the diversified miners

Latest shareholder distribution policies and debt-related targets of the diversified miners
Combined shareholder distributions and capex (US$ billion) of the diversified miners
Reinvestment rates and shareholder payout ratios of the diversified miners
Comparison of net debt with company target ranges and credit rating thresholds (US$ billion)
Combined net gearing of the diversified miners in each price scenario
Peak net gearing of each miner in the price scenarios
Percentage headroom to increase spend before hitting balance sheet thresholds
Total projected spend on capex and shareholder distributions (US$ billion) between 2024 and 2030
Dividend yield and operating cash flow payout ratio forecast and history
Reinvestment rate – outlook and history
Greenfield project IRRs and scale by company
CoRSI transition scores
Heatmap of capital allocation options
Capital allocation options key