Mining giants BHP Billiton (BHP 1.50%) and Rio Tinto (RIO 0.60%) released financial results in the past week. Both posted strong results for the six-month and full-year ended December 31, 2013, indicating that their cost-cutting measures are working. Indeed, the sector's long-term outlook is improving as miners are focusing on getting more out of existing assets and reducing capital spending. However, one major factor that boosted results last year was the weakness in emerging market currencies.

Strong results
Rio Tinto was the first to report its financial results last week. The company posted underlying earnings of $10.2 billion, up 10% on a year-over-year basis. Net earnings for the year were $3.7 billion. Sam Walsh, CEO of Rio, noted that the strong results reflect the progress the company is making to transform its business and demonstrate how it is fulfilling its commitments to improve performance, strengthen the balance sheet, and deliver greater value for shareholders.

Indeed, Rio Tinto is making strong progress on its cost-cutting measures. In 2013, the company saw operating cash cost improvements of $2.3 billion, exceeding its target of $2 billion. Rio also reduced its net debt to $18.1 billion. The company also delighted investors by boosting its dividend by 15%.

BHP Billiton was not far behind in terms of performance. For the six-month period ended December 31, 2013, BHP Billiton reported underlying attributable profit of $7.8 billion, which represents an increase of 31% over the same period in the previous year. The company also saw a significant improvement in productivity. BHP also expects its capital spending to fall to $16.1 billion in the fiscal year 2014 and expects to end the fiscal year with net debt of $25 billion, down from $27.1 billion.

Rio's and BHP's rival Vale SA (VALE 0.16%) is scheduled to release its fourth-quarter and full-year 2013 financial results on February 26, 2014.

The impressive financial results from Rio and BHP Billiton came even as commodity prices struggled in 2013. While the improvement in financial results can be attributed to both companies' efforts to cut costs, they also benefited from weaker currencies in emerging markets such as Brazil and South Africa.

Weakness in emerging market currencies
Weaker currencies in Brazil and South Africa benefited Rio's and BHP Billiton's cost base in 2013. A stronger dollar vis-à-vis emerging market currencies boosted BHP's underlying earnings before interest and taxes by $1.2 billion. Rio's underlying earnings were boosted by $1 billion.

In the six-month period ended December 31, 2013, the Brazilian real fell to 2.28 against the U.S. dollar from 2.04 at the end of December 31, 2012. The South African rand fell from 8.48 to 10.07 against the dollar. The sharp losses in the two currencies were triggered by the announcement from the Federal Reserve that it would start tapering its bond purchases.

The drop in emerging market currencies more than offset the weakness in commodity prices last year. The key question is whether this trend will continue.

Emerging market currencies to remain under pressure
As I said, the sharp losses in the Brazilian real and the South African rand were triggered by the Fed's plans to taper. However, both currencies are also struggling due to weakness in the Brazilian and South African economy.

Brazil and South Africa are part of the so-called "fragile five" group of countries. The term was coined for countries suffering from large current account deficits. The other countries in the group include India, Indonesia, and Turkey. All countries in the group relied on foreign capital to finance the gap in their current account. It worked well while the Fed printed money, most of which ended up in emerging markets. But as soon as the Fed announced plans to taper, the money started flowing out of these fragile economies, hurting their currencies.

The minutes of the Fed's most recent FOMC meeting indicate that the central bank is likely to remain on the tapering path, which is not good news for the "fragile five." Weak economic data from China is going to put further pressure on currencies such as the Brazilian real and the South African rand, given their reliance on commodity exports to the world's biggest consumer of raw materials. The real is currently trading around 2.39 against the dollar, down some 18% in the past year. The South African rand is currently trading around 11 against the greenback. The outlook for both currencies remains gloomy, which is bad news for Brazil and South Africa. However, it means that BHP Billiton's and Rio Tinto's cost base will continue to benefit.