Shares of mining and oil companies are soaring, and this is something for mining contractors in the UK to feel happy about. This trend has been prevalent since the start of 2016.
The FTSE350 index of mining and metals has witnessed a gain of almost 22 per cent since the beginning of the year. Even mining companies, such as Anglo American, which has recently been on a job-slashing spree, have managed to deliver fantastic results.
Anglo American’s credit rating was downgraded by Fitch to junk in February, and the company has even cut its dividends. However, it has gained 71 per cent even after all the problems it is battling. The story repeats itself with Glencore, which saw its share prices surging 60 per cent as it starts working on its debt reduction plan, which includes suspending dividends and selling assets.
What is causing miners to enjoy soaring share prices? Some experts believe the rising share prices of mining companies can be attributed to the hope that metal prices will recover and stay high for the rest of the year. This anticipation has caused a hike in the delivery price of iron ore to China. The price has increased 20 per cent in a week for the delivery of one tonne of iron core. With mining companies significantly cutting their costs, higher prices equate to profit recovery.
There may be many opportunities coming up for mining contractors in the UK. It is important to note that companies operating in the mining and oil and gas sectors are swamped in debt, but they have not defaulted as yet. This makes it difficult to put a value on their assets and equity. Mining contractors should therefore tread with care when taking on new contracts in the coming few months.