BRISBANE, Australia—Australian mining companies, struggling amid a commodities slump, have found an unlikely money-spinner: beef.
The success of pastoral companies owned by miners including BHP Billiton Ltd. and Rio Tinto PLC has become an unusual bright spot amid a prolonged downturn in metals and minerals markets, where prices of iron ore and coal are returning to multiyear lows.
These companies, which rear steers on land earmarked for minerals exploration or on old mining ground in Australia, have benefited from a doubling of beef prices over the past two years, driven by global demand for protein and a drop in the number of cattle following a major drought in North America.
From the arid plains surrounding iron-ore mines in Australia’s Pilbara region to the scrubby hinterland near coal pits on the east coast, higher beef prices are giving these companies more money to invest in genetics or expanding their herds.
Glencore PLC is one of them. The company’s Colinta Holdings unit breeds cattle and runs roughly 50,000 head across almost 3 million acres in Australia.
“It’s a boom time for people in our business,” said Gary Johncock, who has managed Colinta for more than 25 years. “We’re seeing what is certainly an abnormal set of circumstances in the market. I’ve never seen it before.”
Colinta’s success differs from many of Glencore’s other Australian businesses. The Switzerland-based commodities trader has been cutting output of coal and zinc in Australia due to weak prices.
To be sure, running cattle is a small money-spinner for mining companies compared with digging up thermal coal for power plants or iron ore for Asian steel mills. Most global miners don’t disclose the financial performance of their pastoral businesses.
New Hope Corp., one of Australia’s largest listed coal miners, said it makes around 2 million Australian dollars (US$ 1.4 million) in annual revenue from grazing cattle on rehabilitated mine sites. That compares with more than A$ 500 million from its operations as a whole.
However, fatter revenue streams and profits mean beef bosses have a commodity that is scarce among their mining colleagues: cash to spend.
Australian beef prices have surged thanks to a cattle shortage. The local benchmark, the Australian Eastern Young Indicator, hit a record-high of A$ 6.0575 a kilogram in February, from A$ 2.9225 two years earlier.
Beef prices have rallied as droughts in the U.S., Canada and Australia reduced cattle supply while global demand rose. Australian beef exports in 2014 and 2015 nearly doubled compared with previous years, as farmers rushed to feed the U.S.’s appetite for hamburger meat.
In contrast, Australian thermal-coal prices traded around US$ 43 a metric ton, down 34% on two years ago, as demand from China cooled and supplies increased from mines planned when prices were booming. Roughly one third of coal mines in Queensland state are losing money, according to industry body the Queensland Resources Council.
Copper and zinc prices on the London Metal Exchange were down 34% and 16%, respectively, over the same period.
Most mining companies run cattle on plains they intend to explore, rehabilitate or use as a buffer between their pits and local communities. The bull run in beef prices is helping companies to bulk up.
New Hope says it is venturing into breeding and wants to expand its herd to as many as 3,500 heads from around 2,100 now. “The accountants are still getting used to accounting for so-called natural increases” that you don’t get in mining, Chief Executive Shane Stephan said.
About 75% of land managed by Glencore’s coal business is used for agriculture—mainly for cattle grazing but also for crops and vineyards.
“We are under the same scrutiny that all of the other divisions are in terms of costs and income,” Mr. Johncock said.
Glencore’s Colinta unit faced tough times when lackluster beef demand following the global financial crisis led it to defer spending and lay off workers. Now, the business is looking at upgrading infrastructure, hiring more cattlemen, and investing to improve the genetic quality of its herd.
“We’re able to be a little more lateral in our thinking about the genetics we use, where cost may have been an impediment before,” Mr. Johncock said.
Analysts see a strong outlook for Australian beef. In the year through June 2016, the weighted average sale yard price of cattle is forecast to be the highest in real terms since 1980—81, according to the Australian Bureau of Agricultural and Resource Economics and Science’s most recent report.
That is in contrast to iron ore and coal, Australia’s two biggest exports, which are suffering from oversupply that could take years to clear.
Still, high beef prices aren’t always good for miners. Some use their land to fatten cattle that have been bred elsewhere, meaning the cost of buying the animals has also risen sharply.
“The problem with trading cattle is that you are exposed at both ends of the market, so you can take a bath fairly easily,” Mr. Johncock said.
—Lucy Craymer in Hong Kong and Biman Mukherji in New Delhi contributed to this article.
Write to Rhiannon Hoyle at [email protected]