By Scott Wright

THE boss of Weir Group has delivered a bullish verdict on the long-term outlook for the mining-focused engineering giant. But Jon Stanton cautioned that its progress in 2021 will depend on the economic recovery and further “twists and turns” in the battle against coronavirus.

Glasgow-based Weir reported a three per cent fall in pre-tax profits from continuing operations to £184 million for 2020, which Mr Stanton declared was a “highly resilient performance in extraordinary circumstances”.

Orders tumbled by 13 per cent for the year to £1.86bn as the pandemic constrained activity. Iron ore production dropped by an estimated 15% in the second quarter, while construction shutdowns brought a “significant decline” in demand from the infrastructure market.

However, revenues were “broadly stable” at nearly £2bn, boosted by a £100m contract win to supply the Iron Bridge magnetite project in Australia with crushing and pump equipment. And Weir pointed to a strong recovery in the fourth quarter, with orders rising 14% and the growth continuing in the first two months of 2021.

The engineer has now completed the sale of its oil and gas division to Caterpillar Inc. of the US for $405m (£314m), leaving it to focus purely on mining technology, its biggest business. The sale of the loss-making oil and gas unit, which saw orders plunge to £306m from £584m amid declining activity in the US shale market, was concluded in February, after first being announced in October.

Mr Stanton said the company is well positioned to take advantage of long-term demand for metals such as copper, nickel, iron ore and lithium that its equipment helps miners around the world extract. That demand is being is driven by the electrification of transport networks and industry, and decarbonisation.

In the nearer-term, Mr Stanton believes Weir is poised to capitalise on “pent-up demand” among miners which have put capital investment on hold during the pandemic.

However, he notes there is a risk coronavirus could still present short-term challenges. While the mining industry has returned to near-normal operating levels, Weir’s access to mines is restricted in some territories, with rates of infection particularly acute in countries such as Peru and South Africa. “By and large, the momentum has been really good, and that continues to build,” Mr Stanton said. “The fourth quarter and the first two months of this year have been really encouraging, both for minerals and [surface mining tools supplier] ESCO. I’m just slightly cautious about… are there more twists and turns in the pandemic? But the overall direction of travel is very positive.

“Hopefully, as we get through the next six months and we start to come out of the pandemic... the momentum is really going to accelerate.”

While Weir has long been championing technology that can help miners reduce their water and energy usage, Mr Stanton acknowledged that the pandemic had sharpened attention among customers to go even further in this area. And although he said the company has long track record of innovation, he said Weir would consider acquisitions if it brought technologies that could help with the transition to net zero.

Weir, which is celebrating its 150th anniversary, has sold its flow control and oil and gas divisions while adding US-based ESCO to the group during a busy spell for deals in recent years.

Mr Stanton said: “I think the mining industry is about to undertake an unprecedented period of innovation, because the world is going to need more of these type of metals – copper, nickel – if we are going to decarbonise and electrify transport and industry.”

He added: “Our mining customers need to produce more materials from lower-grade cores; they need to use less energy, they need to use less water, they need to have less environmental impact. That is a tremendous opportunity for a company like Weir, which has a history of innovation and bringing technologies to bear where there are such challenges.”

The board has not recommended a final dividend, having also decided not to proceed with an interim pay-out. Mr Stanton said the focus of the company has been to “deliver growth and de-lever the balance sheet”, adding: “We know this is what investors want us to do.”

He said: “We didn’t feel that, in that context, there was any real rush to reinstate the dividend. Of course, the whole policy would have been reassessed post-oil and gas anyway, given we are a smaller business.”

Weir has introduced a new capital allocation policy, which includes a target to pay out 33% of earnings per share. The board will next make a decision on dividends in July, Mr Stanton said.

John Moore at Brewin Dolphin said: “While the dividend hasn’t been re-instated today, there is at least a commitment in its capital allocation policy to resume payments in the not-too-distant future, possibly funded by more exciting growth potential than has been the case for some time. Weir has performed a remarkable turnaround at a time when challenges were hardly in short supply, which is no mean feat.”

Shares in Weir closed down 2.9%, or 57.5p, at 1,948.5p.