When the World's Biggest Miners Sell Assets, Who Buys?

The mining industry is feeling the pinch of lower prices, and to cope, many of its biggest companies are selling off assets and cutting production.

In this clip, Sean O'Reilly, Taylor Muckerman, and Tyler Crowe talk about who steps in when the big players sell off, and what in particular the mining sector can get out of M&A at this point in the cycle. Also, the team discuss how they, as investors, view the low prices in the sector right now.

A transcript follows the video.

This podcast was recorded on Feb. 18, 2016. 

Sean O'Reilly: Who's going to buy these assets at this point? You're talking about the biggest players, and Anglo apparently said they're going to shed their coal and iron ore assets. It's like, who's going to buy this? Like, Cleveland-Cliffs was even trying to sell stuff, and it's like, you're not getting any takers.

Taylor Muckerman: Well, you could look at a BHP (BHP -1.36%) or a Rio Tinto (RIO 0.68%). I mean, if they do want to increase production or have access to greater production for when prices do turn, I think buying something is a much better option than trying to build out a mine --

O'Reilly: Your current production, yeah.

Muckerman: -- or start a brand new mine, because it's a lot less risky. Might cost the same up front, but you're not going to have the setbacks that you generally do see when developing or expanding current mines. So, I could see M&A being the way that people try to increase production in this market. You already see dividends being cut across the board. Not necessarily evaporating, but a lot of people are cutting them in half, trimming them. Anglo did cut their dividend completely for the second half of 2015, I think this year too. So.

O'Reilly: So, Tyler, you said, given that the biggest players are facing some desperation at this point ... you're talking about, hopefully, a market turn, are we at the bottom, if it's this bad ... do any of these names look good to you guys?

Tyler Crowe: The one I own personally, BHP Billiton, as a miner --

O'Reilly: And you said they're very strong.

Crowe: Best balance sheet in the business, and that's why I've been attracted to them. At the same time, I'm still not huge on the buying opportunity right now. You can, as somebody, maybe, just be buying in intervals. I'm not adding a little bit extra like, "Yeah, this is looking pretty good right now." I'm still just kind of adding slowly, just at the current pace I've been at right now. Not really changing my outlook or thesis on anything.

O'Reilly: Cool.

Muckerman: If you look at prices, I've got this from Canaccord Genuity (LSE: CF), they've got the last 12 months for copper, down 21%. Lead down only 2%. Gold down 2.5%. Iron ore down 26%. Coke and coal down 27%. Nickel down 43%. But then, if you go back six months, three months, one month, one week, you start to see a noticeable increase -- one-week changes, most of the commodities are positive. One-month changes, double digits for zinc, gold, iron ore, lead. So, maybe things are starting to bottom out price-wise --

O'Reilly: Couldn't get much worse, right? (laughs) 

Muckerman: -- but I think companies are still going to have a tough time, because these increases in price are off such a low base that they're still not really making a bunch of money.

Crowe: And it kind of adds to the appeal of a Rio, or a BHP, who are diversified miners, who have assets across several mining spaces --

O'Reilly: They mine palladium, or ... yeah.

Crowe: -- versus, like, a Vale (NYSE: VALE) or somebody like that, who's much more of a pure iron ore and coke and coal kind of player. If you're spread out among some of these ones that we're starting to see a little recovery in, eh, you get a little bit of help.