Metals prices have declined recently from their sky-high levels. China’s slower economic growth over the past few months and decrease in demand for steel, among other factors, is partly responsible for the price decline.
Nevertheless, an increasing demand for precious metals as a haven amid growing uncertainties surrounding the global economic recovery and an increasing need for other metals for construction and infrastructure activities should benefit many metals and mining companies. In addition, the $1 trillion infrastructure bill passed by the Senate on August 10 is expected to boost the demand for metals and mining products.
Rio Tinto Group (RIO)
London-based RIO explores formines, and processes mineral resources. It owns and operates open pits, underground mines, mills, refineries, smelters, power stations, and research and service facilities. Its key offerings include aluminum, copper, diamonds, gold, borates, and iron ore.
On April 20, 2021, RIO signed a power purchasing agreement for a new renewable energy plant to power the operations of its QMM ilmenite mine in Fort Dauphin, Southern Madagascar. QMM’s President, Ny Fanja Rakotomalala, said, “This project is a strong example of our commitment with the Government of Madagascar to the sustainable development of the region.”
RIO’s consolidated sales increased 71% year-over-year to $33.08 billion for the half-year ended June 30, 2021. Its net earnings grew 271% year-over-year to $12.31 billion, while its underlying EBITDA increased 118% year-over-year to $21.04 billion. Its underlying EPS increased 156% year-over-year to 751.90 cents.
In terms of forward non-GAAP P/E, RIO’s 4.41x is 68% lower than the 13.79x industry average. In terms of forward EV/EBIT, the stock’s 3.24x is 71.2% lower than the 11.25x industry average.
Analysts expect RIO’s EPS and revenue to increase 113.6% and 50.7%, respectively, year-over-year to $16.44 and $67.25 in its fiscal year 2021. The stock has gained 18.6% over the past year to close yesterday’s trading session at $73. Wall Street analysts expect the stock to hit $103.56 in the near term, which indicates a potential 41.9% upside .
Vale S.A. (VALE)
Based in Rio de Janeiro, Brazil, VALE produces and sells iron ore and iron ore pellets for raw materials in steelmaking internationally. The company operates through three segments: Ferrous Minerals; Base Metals; and Coal.
On June 29, VALE announced a CAD150 million ($119.08 million) investment to extend its current mining activities in Thompson, Manitoba, by 10 years. Mark Travers, Executive Vice-President for Base Metals, said, “The global movement to electric vehicles, renewable energies, and carbon reduction has shone a welcome spotlight on nickel–positioning the metal we mine as a key contributor to a greener future and boosting world demand.”
The company’s net operating revenue increased 121.8% year-over-year to $16.67 billion for its fiscal second quarter, ended June 30, 2021. VALE’s adjusted EBITDA grew 227.4% year-over-year to $11.04 billion, while its net income increased 662.4% year-over-year to $7.59 billion. Its total assets increased 16.3% year-over-year to $96.72 billion.
In terms of forward EV/EBIT, VALE’s 2.53x is 77.5% lower than the 11.25x industry average. Likewise, the stock’s 0.28X forward non-GAAP PEG ratio is 78.8% lower than the 1.32x industry average.
VALE’s EPS is expected to increase 418.7% year-over-year to $5.55 in its fiscal year 2021. Its revenue is expected to increase 65.7% year-over-year to $17.94 billion for the quarter ending September 30, 2021. Over the past year, the stock has gained 61.6% to close yesterday’s trading session at $17.91. Wall Street analysts expect the stock to hit $26 in price in the near term, which indicates a potential 45.2% upside.
Teck Resources Limited (TECK)
TECK explores for, acquires, develops, and produces natural resources in Asia, Europe, and North America. Its segments include Steelmaking Coal; Copper; Zinc, and Energy. Also, its main products include steelmaking coal, copper concentrates, refined copper cathodes, and refined zinc and zinc concentrates. TECK is based in Vancouver, Canada.
On July 27, Don Lindsay, the company’s President and CEO, said, “Our Neptune port upgrade project is operational and ramping up to full capacity, and the new facility is being integrated into our logistics chain, which will reduce costs, enhance flexibility and improve performance.”
TECK’s revenues surged 48.7% year-over-year to CAD2.56 billion ($2.01 billion) for the fiscal second quarter ended June 30, 2021. Its adjusted EBITDA grew 103.9% year-over-year to CAD989 million ($777.49 million). Its adjusted profit came in at CAD 339 million ($266.50 million), representing a 280.9% year-over-year increase. Its adjusted EPS came in at CAD0.63 ($0.50), up 270.6% year-over-year.
In terms of forward P/B ratio, TECK’s 0.61x is 73.4% lower than the 2.29x industry average. Likewise, its 3.73x forward P/CF is 55.7% lower than the 8.43x industry average.
For the quarter ending September 30, 2021, analysts expect TECK’s EPS and revenue to increase 379.8% and 58.7%, respectively, year-over-year to $0.87 and $2.76 billion. The stock has soared 84.9% in price over the past year to close yesterday’s trading session at $20.99. Wall Street analysts expect the stock to hit $27.77 in the near term, which indicates a potential 32.3% upside.
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RIO shares were trading at $75.50 per share on Tuesday afternoon, up $2.50 (+3.42%). Year-to-date, RIO has gained 12.34%, versus a 20.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Nimesh Jaiswal
Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...
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