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South32 cyclical miners

General discussions about equity high-yield income strategies
OLTB
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South32 cyclical miners

#161877

Postby OLTB » August 24th, 2018, 5:06 pm

funduffer wrote:
simoan wrote:
funduffer wrote:The Mining sector is now just over 9% of my HYP following recent rising prices of BLT and S32, so no more top-ups for now, but pleased with S32.

FD


I think you need to be careful. The mining companies do not have progressive dividend policies and so dividends are essentially variable with the business cycle, hence in good times you will get the occasional special divi. So healthy rises whilst times are good but this could be reversed once earnings fall during a cyclical downturn. Just saying that as an industry it may be worth not having too much exposure compared to some others where there is a defined dividend policy.

All the best, Si




You are right of course - Mining is very cyclical, but also high yielding so worth having in a HYP if you can stomach the roller-coaster dividends.

FD


As mining is a ‘known’ cyclical industry, would experienced HYPers recommend topping up even if dividends fall/cease to take advantage of lower prices for when the better times churn out the dividends. Perhaps this might be a better strategy for those of us building HYPs rather than those relying on income from HYPs?

Cheers, OLTB.

Raptor
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Re: South32 cyclical miners

#161960

Postby Raptor » August 24th, 2018, 10:31 pm

Moderator Message:
I received a request to move the post and thread to strategies. I would have preferred to leave a shadow of post behind but php does not allow that so split this post instead. Raptor.

Walrus
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Re: South32 cyclical miners

#161987

Postby Walrus » August 25th, 2018, 6:12 am

OLTB wrote:
funduffer wrote:
simoan wrote:
I think you need to be careful. The mining companies do not have progressive dividend policies and so dividends are essentially variable with the business cycle, hence in good times you will get the occasional special divi. So healthy rises whilst times are good but this could be reversed once earnings fall during a cyclical downturn. Just saying that as an industry it may be worth not having too much exposure compared to some others where there is a defined dividend policy.

All the best, Si




You are right of course - Mining is very cyclical, but also high yielding so worth having in a HYP if you can stomach the roller-coaster dividends.

FD


As mining is a ‘known’ cyclical industry, would experienced HYPers recommend topping up even if dividends fall/cease to take advantage of lower prices for when the better times churn out the dividends. Perhaps this might be a better strategy for those of us building HYPs rather than those relying on income from HYPs?

Cheers, OLTB.


Well I have miners in my high yield portfolio. I made the decision though to invest in the black rock trust though rather than specific miners. This is purely due to my perceived risk of stock specific risk being greater in this area. To be honest I'm not sure that actually holds and I rather obviously look on at the yield available at Rio.

That being said I do hold CAML in my value portfolio a fairly recent addition, paying a good dividend, and and I think decent prospects of some capital gain.

OLTB
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Re: South32 cyclical miners

#161995

Postby OLTB » August 25th, 2018, 7:14 am

Walrus wrote:


Well I have miners in my high yield portfolio. I made the decision though to invest in the black rock trust though rather than specific miners. This is purely due to my perceived risk of stock specific risk being greater in this area. To be honest I'm not sure that actually holds and I rather obviously look on at the yield available at Rio.

That being said I do hold CAML in my value portfolio a fairly recent addition, paying a good dividend, and and I think decent prospects of some capital gain.


Thanks Walrus - I have just added BRCI over the last few weeks into my IT portfolio and have noted the recent chatter re CAML. Very high yield as you say!

Cheers, OLTB.

Cheers, OLTB.

tjh290633
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Re: South32 cyclical miners

#162023

Postby tjh290633 » August 25th, 2018, 12:23 pm

One of my early investments was Ebor Commodity Trust. I first bought in 1970 at 35p in today's money, 7 shillings then. I started investing regularly in the units in 1978 and continue to do so, the fund now being JP Morgan Natural Resources. Back then the yield was 4.4%, but it gradually fell until dividends ceased in 1995, with a resumption in 2015. I took money out on four occasions, to put the proceeds into my PEP.

The share price has risen reaching a peak of over £10 in 2011, having been adjusted to cater for splits, etc. making the original price 11.67p, fell to a minimum in 2015 at about 300p and has since risen to its present level. My IRR over those years has been 11.8%.

My first step into holding individual shares was in Anglo-American at 1564p in 2008, which promptly stopped paying dividends, so in 2010 I sold them and bought BLT at 1994p as a replacement. AAL had risen considerably despite the lack of dividends, so having sold at 2450p the yield on my original investment was about 4.5%, despite BLT only yielding 2.9% at the outset.

We know the demerger of S32 in 2015 and the cut in dividends following the Samarco disaster in 2016. Such events are part of the risk of investing in shares in Natural Resources companies. BLT's IRR has been 4.0% for me, having added on four occasions at prices between 1800p and 1300p. S32 was initially disapponting, with its share price falling from the demerger level of 116.7p but I added to my holding at 102p to make it a sensible size and have since added more at 188p. That has given me an IRR of 47%, and a current yield of 5.1%, slightly below that of its parent, BLT which yields 5.4%.

I also went into RIO in 2016, at 2210p, with a starting yield of 6.1%, and aded a few more at 2021p, then trimming back by 25% in late 2016 when they went overweight at 3197p. The IRR has been 38% and the current yield is 6.1%.

The commodity market has its ups and downs, as JPMNR indicates. Despite that I have found that the individual shares have done better for me in terms of income than has the fund. Without delving into the reasons behind its lack of income, it has been a good source of capital growth for me. I haven't compared it with the favourite IT, but I suspect that they are similar in many ways.

TJH

StepOne
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Re: South32 cyclical miners

#162038

Postby StepOne » August 25th, 2018, 1:22 pm

tjh290633 wrote:I first bought in 1930 at 35p in today's money, ...


I know you're one of our more senior posters, TJH, but surely not trading in 1930?!?!?

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Re: South32 cyclical miners

#162068

Postby monabri » August 25th, 2018, 5:52 pm

Wall Street was just ahead? ....Did you mean 1950?

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Re: South32 cyclical miners

#162069

Postby monabri » August 25th, 2018, 6:07 pm

Walrus wrote:That being said I do hold CAML in my value portfolio a fairly recent addition, paying a good dividend, and and I think decent prospects of some capital gain.


I too have recently added a small % of CAML to my H.Y. investment p/f.

I considered BRCI as an addition but it's constituents comprise quite a lot of Rio, BLT, RDSB & BP by percentage [total of ~29%]. I would need to investigate further into the likes of Glencore/Chevron/Exxon as I know very little about them.....and I have no money to invest at the moment !!

Top 10 Holdings in BRCI Investment Trust.



The time to buy miners is when they are out of favour and then hold on! Perhaps something like BRCI and/or BRWM might be a consideration for a future addition to get "diversity/diworsity" in these areas in addition to the usual HYP candidates.."when the price is right" ?

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Re: South32 cyclical miners

#162071

Postby PinkDalek » August 25th, 2018, 6:25 pm

monabri wrote:
Walrus wrote:That being said I do hold CAML in my value portfolio a fairly recent addition, paying a good dividend, and and I think decent prospects of some capital gain.


I too have recently added a small % of CAML to my H.Y. investment p/f. ...


For those who don't frequent "Share Ideas", cshfool wrote about this AIM market share recently over there:

Central Asia Metals (CAML)

tjh290633
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Re: South32 cyclical miners

#162086

Postby tjh290633 » August 25th, 2018, 7:18 pm

StepOne wrote:
tjh290633 wrote:I first bought in 1930 at 35p in today's money, ...


I know you're one of our more senior posters, TJH, but surely not trading in 1930?!?!?

Yes, it should be 1970. Now corrected.

Thanks for pointing that out.

TJH

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Re: South32 cyclical miners

#162450

Postby funduffer » August 27th, 2018, 5:51 pm

As well as South32 and BHP Billiton in my HYP, I also hold BRWM in my High Income IT portfolio. BRWM has been a bit of a disaster really, with a large cut in dividend and share price.

In retrospect BRCI is better diversified, and I regret not choosing them instead as the Mining play when I set up my IT portfolio.

FD

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Re: South32 cyclical miners

#163193

Postby minerjoe » August 30th, 2018, 3:53 pm

IMO South32 is highly exposed to the cyclic mining market. As someone from the industry when you look at their metals, they are the more marginal and boom/bust ones ones e.g Nickel, lead etc, on top of that the sites they have are the older sites coming to the end of their lives.

That said Xstrata (now Glencore) built a good base on such tier 2 operations. But they do not have the long life, low cost operations that BHP, Rio have. Little copper, no Iron ore.

Just my 2c

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Re: South32 cyclical miners

#163227

Postby Gengulphus » August 30th, 2018, 7:48 pm

OLTB wrote:As mining is a ‘known’ cyclical industry, would experienced HYPers recommend topping up even if dividends fall/cease to take advantage of lower prices for when the better times churn out the dividends. Perhaps this might be a better strategy for those of us building HYPs rather than those relying on income from HYPs?

Yes and no - it depends who I was making the recommendation to.

The "no" side first: I would not recommend it to the prototypical HYPer: the investor who just wants their portfolio to generate a sustainable and hopefully growable income with pretty minimal work on their part, but who wants the sort of control over what they're invested in that a portfolio of individual shares gives. Note it doesn't matter to me why they want those things: they could want the income for living expenses now, or because they believe reinvesting a good dividend income is the best way to get good, reliable growth of their pot, or for other reasons. And they could want the control over the portfolio because they don't trust the financial professionals not to find ways to skim off all the extra returns the make and a bit more in hidden and not-so-hidden fees, or because they have particular objections to and likings for some industries that they're going to find hard to replicate in a fund - for instance, someone might object strongly to holding defence shares but positively want to hold tobacco shares, or again for all sorts of other reasons.

And the "yes" side is that if a HYPer fancies something a bit more adventurous and challenging in the way of investing in individual shares, I don't think it's all that bad a thing to try. It can be very successful if you get it right - for example, an investment in BHP Billiton when it announced its severely cut interim in February 2016 would have about 3-3.5 bagged by now. Earlier in 2016 would have been even better, but the window of really good opportunities wasn't all that long. And there's no obvious relationship between that window and when the dividend cut occurs: for instance, there were some pretty good opportunities for Lloyds, but they occurred for about a year spanning the 2011/2012 boundary, around 2.5-3 years after the dividend was cancelled in February 2009. And of course, in some cases that window never materialises at all, Carillion being the obvious example.

So basically to get it right you have to get both the share and the timing right, and that ain't easy! I won't say it's impossible to do systematically (though many would), but I certainly don't know that it's possible, other than by pure luck.

So if you fancy the idea, try it and see how you go. But I most certainly don't guarantee success, and so would strongly suggest keeping strict control over it. Most especially, don't be too tempted by the "it's still going down; oh well, I must have piled in too early, but never mind, it still looks good, so I'll pile in some more" trap - that's a recipe for really bad losses or tying up a lot of money unproductively for a very long time when you encounter a Cariillion or an RBS... Basically, have a maximum limit on how much you'll put into any single holding and don't go over it.

And avoid thinking of it as part of your HYP strategy, or at the very least posting on the HYP Practical board as though it were. It quite simply won't be one by the HYP Practical board's standards. It would be a Recovery strategy with a high-yield (though not necessarily currently high-yield) component to how it picks the shares it invests in.

Gengulphus


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