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.
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.
Glencore plc (GLNCY)
Based in Switzerland, GLNCY produces, processes, stores, transports, and markets metals, minerals, and energy products internationally. The company also engages in the oil exploration/production, distribution, storage, and bunkering activities and offers coal, crude oil and oil products, refined products, and natural gas. It markets and distributes physical commodities sourced from third-party producers and its production to industrial consumers in the battery, electronic, construction, automotive, steel, energy, and oil industries.
On May 5, 2022, GLNCY announced establishing a strategic partnership with Li-Cycle Holdings Corp. (LICY), a leading lithium-ion battery recycler. GLNCY will seek to combine primary and recycled battery raw materials to produce battery-grade end products and localize battery raw material supply chains in a scalable and sustainable manner. This will enable GLNCY to meet its net-zero total emissions reduction strategy.
GLNCY pays a $0.26 per share dividend annually, translating to a 4.46% yield.
GLNCY’s revenue for its fiscal 2021 full year ended December 31, 2021, increased 43.2% year-over-year to $203.75 billion. The company’s pre-tax income came in at $7.38 billion, versus a $5.12 billion loss in the year-ago period. Its net income came in at $4.35 billion for the quarter, compared to a $3.95 billion net loss in the prior-year period. GLNCY’s EPS came in at $0.37, versus a $0.14 loss per share in the year-ago period. The company had $3.24 billion in cash and cash equivalents as of December 31, 2021.
Analysts expect the company’s revenue to be $279.44 billion for fiscal 2022 ending December 31, 2022, representing a 37.2% rise from the prior-year period. The stock’s 3.88x forward EV/EBIT is 58.9% lower than the 9.44x industry average. In terms of non-GAAP forward P/E, GLNCY is currently trading at 3.41x, 68.2% lower than the 10.73x industry average. Over the past month, the stock has gained 3.7% to close yesterday’s trading session at $11.66.
GLNCY’s POWR Ratings reflect its solid prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It has an A grade for Growth and Momentum and a B grade for Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for GLNCY’s Quality, Sentiment, and Value here. GLNCY is ranked #3 of 45 stocks in the Miners – Diversified industry.
Vale S.A. (VALE)
Based in Rio de Janeiro, Brazil, VALE operates as a metal and mining company and is engaged primarily in producing iron ore and nickel. The company also produces iron ore pellets, manganese ore, ferroalloys, metallurgical and thermal coal, copper, platinum group metals (PGMs), gold, silver, and cobalt. It has a distribution center to support the delivery of iron ore worldwide and, through associates and joint ventures, also has investments in energy and steel businesses.
On June 9, 2022, VALE concluded the pre-feasibility study for a proposed nickel sulfate project in Quebec, Canada. The proposed project would be the first-of-its-kind fully domestic nickel sulfate facility for the North American market, leveraging current and future low carbon and high-grade nickel production from VALE’s Canadian operations. This will offer the company diversified sales and an accelerated entry into North America’s burgeoning electric vehicle supply chain.
VALE pays a $1.45 per share dividend annually, translating to a 9.12% yield. The company’s dividend has grown at an 87.5% rate over the past five years.
The company had $9.06 billion in cash and cash equivalents as of March 31, 2022. VALE’s 3.81x non-GAAP forward P/E is 64.5% lower than the 10.73x industry average. In terms of forward EV/EBIT, the stock is currently trading at 3.05x, 67.7% lower than the 9.44x industry average. Over the past month, the stock has gained 3.1% to close yesterday’s session at $15.89.
VALE’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has an A grade for Quality and a B grade for Value and Sentiment. Click here to see the additional ratings for VALE (Momentum, Stability, and Growth). The stock is ranked #7 in the Industrial – Metals industry.
Freeport-McMoRan Inc. (FCX)
FCX is a mining company that primarily explores copper, gold, molybdenum, silver, and other metals, as well as oil and gas. The company operates through North America Copper Mines; South America Mining; Indonesia Mining; Molybdenum Mines; Rod & Refining; and Atlantic Copper Smelting & Refining business segments. As of December 31, 2021, it operated approximately 135 wells.
FCX pays a $0.30 per share dividend annually, translating to a 0.81% yield.
FCX’s fiscal 2022 first-quarter revenues increased 36.1% year-over-year to $6.60 billion. The company’s operating income came in at $2.81 billion for the quarter, representing an 83.4% rise from the year-ago period. While its adjusted net income increased 107% year-over-year to $1.57 billion, its adjusted EPS grew 109.8% to $1.07. As of March 31, 2022, the company had $8.34 billion in cash and cash equivalents.
Analysts expect FCX’s EPS to be $3.90 for fiscal 2022 ending December 31, 2022, representing a 5.9% year-over-year improvement. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $26.85 billion in the same fiscal year represents a 17.5% year-over-year improvement.
The stock’s 6.54x forward EV/EBIT is 30.7% lower than the 9.44x industry average. In terms of non-GAAP forward P/E, FCX is currently trading at 9.66x, which is 10% lower than the 10.73x industry average. Over the past month, the stock has gained 6.1% to close yesterday’s trading session at $37.17.
FCX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
It has a B grade for Quality. Click here for the additional ratings for FCX’s Value, Growth, Sentiment, Momentum, and Stability. FCX is ranked #13 in the Industrial – Metals industry.
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RIO shares were trading at $68.74 per share on Wednesday morning, up $1.32 (+1.96%). Year-to-date, RIO has gained 9.43%, versus a -20.38% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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