Rio Tinto Production and BHP, plus Hollywood Bowl Placing

Mining company Rio Tinto (RIO) issued a statement on its first quarter production this morning. This was a very positive report and the share price has risen over 5% at the time of writing. The share price of BHP Group (BHP), another big miner in the FTSE-100, rose in tandem.

I am not generally a fan of mining companies as their profits are very dependent on the prices of the commodities they produce, but with a p/e of under 10 and a very high dividend yield I did consider those two companies worth a small punt recently. They are both heavily dependent on industrial consumption in China but that seems to be recovering, particularly for iron ore. That may of course simply be because it is difficult to halt blast furnaces temporarily. Their production guidance for 2020 remains basically unchanged apart from in copper where demand and prices have fallen and production and development of a new mine in Mongolia has been disrupted by the coronavirus epidemic.

Hollywood Bowl (BOWL) announced a share placing this morning at 145p – a slight premium to last nights price. The share price has risen by 10% today. This company is in the “hospitality” sector as it runs bowling alleys primarily, all of which have been closed.

The company has taken aggressive steps to cut expenditure such as halting all new developments, delaying all discretionary expenditure, furloughing staff using Government schemes and deferring a proportion of salaries for management. It is also negotiating with its landlords to defer rent payments for 9 to 12 months. In addition it has agreed relaxed covenants with its lenders, and it previously announced that the interim dividend will be cancelled.

All of this means that monthly cash burn will reduce to £1.6 million while its sites remain closed so it suggests it won’t run out of cash until the end of October. But I am still glad I sold most of the shares I held in this company in February. Financial results for this year are clearly going to be very poor and it may take a long time before customers return in volume.

As with all companies in this sector, buying the shares at present is pretty much a bet on when the restrictions might be listed and business return to normal. I have no better view on that than most readers of this article I suspect. But the share price probably rose today on the view that the company may avoid going bust if life returns to normal within a few months’ time.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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One thought on “Rio Tinto Production and BHP, plus Hollywood Bowl Placing”

  1. Postscript: It has been reported in the media that a drug produced by Gilead Sciences may be effective as a treatment for Covid-19 based on early results from a clinical trial. But a lot of cold water was promptly poured on the expectations for it because there was no control group, the patient sample was small, none were so severely affected they were on ventilators, etc, etc. Even if it works, it might just stop fewer people dying from the disease but as nobody wants to suffer the acute symptoms it will not stop preventive lockdowns that are affecting companies such as Hollywood Bowl.

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