From Miners to Big Oil, the Great Commodity Cash Machine is Back

Just over five years ago Anglo American Plc was in deep trouble. The natural resources giant, beset by a collapse in commodity prices, scrapped its dividend and announced plans to close mines and cut thousands of workers. Amid talk of an emergency capital raise, its market value fell to less than $3 billion.

This week, the trials of 2016 probably seemed like a parallel universe to its Chief Executive Officer Mark Cutifani. Fueled by a rally in iron ore and other commodity prices, he announced record first-half earnings and billions in dividends. Anyone who took a punt on Anglo’s shares when they reached their nadir, would have seen a 14-fold increase as the market capititalization soared to $55 billion.

“High commodity prices have been very important to us,” Cutifani told investors earlier this week. “We don’t think this is as good as it gets.”

Anglo American is one of many: with raw materials prices surging, the whole natural resources sector is showering shareholders with special dividends and buybacks as miners, oil drillers, trading houses, steelmakers and farmers reap billions in windfall profits. The sector, marked down by investors because of its contribution to climate change and a reputation of squandering money on mega-projects, is again a great cash-machine.

The economic rebound from last year’s Covid slump has powered an explosive rally in commodity prices as consumers forgo vacations and dining out and spend their money loading up on physical goods instead: everything from patio heaters to start-of-the art TVs. Politicians are helping, too, lavishing hundreds of billions on resource-heavy infrastructure projects.

The Bloomberg Commodity Spot Index, a basket of nearly two dozen raw materials, surged to a 10-year high this week and is rapidly closing in on the record set in 2011. Brent crude, the global oil benchmark, has again surged above $75 a barrel, copper is headed back toward $10,000 a ton, European natural gas is at its highest ever for the summer season, and steel is changing hands at unprecedented levels. Agricultural commodities such as corn, soybeans and wheat are also expensive.