Rising commodity prices due to the supply chain disruptions and soaring demand bode well for mining companies. The surging global demand for metals and materials and rising prices amid the multi-decade high inflation should drive the mining industry’s growth.
Moreover, the industry should benefit from the rising infrastructure projects, automation of production processes, and sustainability goals. The global mining market is expected to grow at a CAGR of 12.9% to $3.36 trillion by 2026. Investors’ interest in mining stocks is evident from the SPDR S&P Metals and Mining ETF’s (XME) 15.5% gains over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 19.7% loss.
Therefore, it could be wise to buy fundamentally-sound mining stocks, Rio Tinto Group (RIO), BHP Group Limited (BHP), Glencore plc (GLNCY), Vale S.A. (VALE), and Freeport-McMoRan Inc. (FCX). These stocks are well-positioned to deliver solid total returns, given their lower valuations and impressive dividend payout histories.
Rio Tinto Group (RIO)
Headquartered in London, the U.K., RIO explores for, mines, and processes mineral resources worldwide. The company operates through four segments—Iron Ore; Aluminum; Copper & Diamonds; and Energy & Minerals. It also owns and operates open pit and underground mines, mills, refineries, smelters, power stations, and research and service facilities. It also includes diamond mining, sorting and marketing, and lithium exploration.
On June 9, 2022, RIO and Nano One Materials Corp. (NNOMF), a clean technology innovator in battery materials, agreed to enter into a strategic partnership providing iron and lithium products, collaboration, and a $10M investment into NNOMF. This accelerates the commercialization of NNOMF’s One-Pot and M2CAM technologies and adds to the Government of Canada’s Mines-to-Mobility initiative for the North American battery ecosystem. This will also help companies make the battery supply chain more efficient for North American and overseas markets.
RIO pays an annual dividend of $8.34, translating to a 12.12% yield. The company’s dividend has grown at a 36% rate over the past five years.
For its fiscal 2021 full year ended December 31, 2021, RIO’s consolidated sales revenue increased 42.3% year-over-year to $63.50 billion. The company’s operating profit came in at $29.82 million for the quarter, indicating a 77.2% rise from the prior-year period. While its net earnings increased 117.1% year-over-year to $22.58 billion, its EPS grew 77.3% to $0.39. As of December 31, 2021, the company had $12.81 billion in cash and cash equivalents.
The stock’s 6.54x forward EV/EBIT is 32.3% lower than the 9.67x industry average. In terms of non-GAAP forward P/E, RIO is currently trading at 6.17x, which is 44.9% lower than the 11.21x industry average. Over the past month, the stock has gained 4.6% to close Friday’s trading session at $68.81.
RIO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a B grade for Value, Stability, and Quality. Click here for the additional ratings for RIO’s Growth, Sentiment, and Momentum. RIO is ranked #4 of 37 stocks in the Industrial – Metals industry.
BHP Group Limited (BHP)
Headquartered in Melbourne, Australia, BHP discovers, acquires, develops, and markets natural resources worldwide. The company operates through four segments—Petroleum, Copper, Iron Ore, and Coal. BHP extracts and processes minerals, oil, and gas from its production operations in Australia and the Americas and manages product distribution through its global logistics chain, including freight and pipeline transportation.
On June 1, 2022, BHP began testing two new automated ship loaders at its Port Hedland export facility in Western Australia’s Pilbara, in a move that will provide significant safety, production, and cost benefits. A 3D laser scan technology has been used in the $50 million projects, which will fully automate eight ship loaders by 2023. The project is expected to enable an increase in production through the combination of greater precision, reduced spillage, faster load times, and equipment optimization.
BHP’s dividend has grown at a 45.3% rate over the past five years. Its annual dividend of $6 translates to a 9.87% yield.
For the half-year ended December 31, 2021, BHP’s total revenues increased 27% year-over-year to $30.53 billion. The company’s operating profit came in at $14.85 billion, indicating a 50.1% rise from the year-ago period. BHP’s net profit came in at $10.51 billion, up 117.6% from the prior-year period. Its EPS increased 108% year-over-year to $1.67. The company had cash and cash equivalents of $12.37 billion as of December 31, 2021.
The stock’s 9x forward EV/EBIT is 49.5% lower than the 9.44x industry average. In terms of non-GAAP forward P/E, BHP is currently trading at 9x, which is 16.2% lower than the 10.73x industry average. Over the past month, the stock has lost 4.3% to close yesterday’s trading session at $60.81.
BHP’s POWR Ratings reflect this promising outlook. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system.
It has a B grade for Stability, Sentiment, and Quality. Click here to see the additional ratings for BHP’s Growth, Value, and Momentum. BHP is ranked #2 in the Industrial – Metals industry.
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