By Scott Patterson and Rhiannon Hoyle 

The world's biggest miners are profit machines again, cashing in on soaring commodity prices and rewarding investors who stuck with them through a brutal downturn.

BHP Billiton Ltd., the world's largest miner by market value, said Tuesday it earned a net profit of $3.2 billion for the second half of 2016 after posting a $5.7 billion loss in the year-ago period. Anglo American PLC, the fifth-largest mining company, reported a net profit of $1.6 billion for all of 2016, a dramatic rebound from 2015, when it lost $5.6 billion.

The solid performance builds on strong results posted by British-Australian miner Rio Tinto PLC, which two weeks ago said it earned $4.6 billion in 2016 following a loss of $866 million in the prior year. Switzerland-based Glencore PLC is scheduled to release 2016 results on Thursday, with analysts widely predicting a return to profit.

The swift return to profitability for the world's mining giants has surprised analysts, investors and executives alike. Few predicted sustained rallies in everything from iron ore to coal to copper last year.

Now that the miners have dug themselves out of a hole, the question is whether they can keep from sliding back in, executives and analysts say.

Global mining companies are in better shape now then they were two years ago, when a steep decline in commodity prices sent their shares reeling, experts say. The most significant change: less debt.

Anglo American cut its net debt to $8.5 billion at the end of 2016 from $12.9 billion a year ago. BHP's net debt at year-end stood at $20.1 billion, down from $26.1 billion at midyear. Rio Tinto last year slashed net debt by 30% from the previous year to less than $10 billion. Swiss mining giant Glencore PLC unloaded $4.7 billion worth of assets, with the goal of bringing its net debt below $16.5 billion-$17.5 billion by the end of 2016 from $29.7 billion as of June 30, 2015.

"They're as lean as can be," said Campbell Parry, an analyst with Abax Investments, referring to the mining companies. The Cape Town, South Africa, investment firm owns shares of Anglo American and BHP.

Leaner balance sheets should give the companies "a lot more agility than they had a few years ago," Mr. Parry added.

Still, mining executives, burned by the previous downturn, remain cautious.

They have chosen to use the surge in profits largely to reward investors, not launch big new projects. Rio increased its dividend and announced a $500 million share buyback. BHP doubled its dividend. Anglo says it plans to pay dividends on 2017 profits after eliminating its dividend last year.

Although profits are back, they remain far below the dizzying heights reached in years like 2011, when BHP recorded over $23 billion in profit amid a China-fueled boom in commodity prices.

Mining executives are particularly wary that coal and iron-ore prices, which surged last year amid renewed demand in China and reduced Chinese production, have risen too far too fast.

"I have to say, we don't think these prices will hold up in the long term," Anglo American Chief Executive Mark Cutifani said on a conference call with reporters Tuesday, referring to coal and iron ore.

BHP CEO Andrew Mackenzie, in comments to reporters in London Tuesday, said reduced stimulus in China and new supplies will likely hurt prices for bulk commodities.

But Mr. Mackenzie said he remains confident that, overall, demand from China will remain solid this year. "I think China is steady as she goes, " he said.

Executives are also growing concerned that an increasingly unpredictable political situation in the U.S. and elsewhere could spark trade disputes, disrupting global growth and demand for commodities.

BHP executives have singled out the policy platform of President Donald Trump's administration, which they said could spark trade wars that weigh on business confidence, hurt investment and lead to higher inflation in the U.S. Mr. Cutifani has also cautioned Mr. Trump against pushing the world toward protectionism.

"It's an uncertain world out there," Mr. Mackenzie said. "Trade wars are not going to help anybody."

A spokeswoman for the White House didn't immediately respond to a request for comment.

Other mining executives have expressed enthusiasm about Mr. Trump's plans to ramp up infrastructure spending in the U.S. Glencore CEO Ivan Glasenberg believes that a $1 trillion infrastructure program proposed by Mr. Trump is likely to boost demand for the commodities his firm produces, especially copper.

Mr. Mackenzie and BHP Chairman Jac Nasser met with Mr. Trump, then president-elect, in January. At the meeting, they discussed the impact the U.S. policy direction could have on resources markets, Mr. Mackenzie said Tuesday.

Write to Scott Patterson at scott.patterson@wsj.com and Rhiannon Hoyle at rhiannon.hoyle@wsj.com

 

(END) Dow Jones Newswires

February 21, 2017 12:14 ET (17:14 GMT)

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