From UBS comes estimates of pain:
Diversifieds: All else equal, our BHP & RIO earnings estimates for CY 16 would be 60% and 29% lower, respectively, under a spot scenario. RIO would also trade on cheaper spot multiples at 19x CY 16E PE vs BHP at 46x CY 16E. At spot, S32’s CY 16 earnings would decline to a loss of US$62m. Iron ore: The spot iron ore price is 5% below our CY 16 forecast and combined with FX implies a 41% downgrade to FMG’s FY 16E earnings.
These are measured against the UBS outlook of the low $50s for the next few years. What’s more, for BHP:
BHP Billiton Ltd’s yield is now 8.7%, implying a high risk of a cut in FY 16 for the 1st time in >80yrs. At spot prices, we estimate BHP will be ~US$3.7bn cash flow negative after dividend in FY 16 and ~$2bn negative from FY 17 (when capex falls and volumes recover); while the dividend is not sustainable at spot, we also believe spot oil and copper prices are not sustainable medium term. In our opinion, BHP’s credit rating remains key with the dividend more likely to be cut if the “solid A” rating is at risk.
I agree that iron ore and copper prices aren’t sustainable. They are both still far too high.
