Australia’s material industry has witnessed a positive growth today (10 January 2019) with S&P/ASX 200 Materials (Sector) moving up by 0.73% in a single day. Let’s take a look at two iron ore stocks that have made strong strategic progress in the recent past. These are also expected to benefit from a recovery in iron ore prices going forward.
BHP Group Limited (ASX: BHP)
Global resources company, BHP Group Limited (ASX: BHP) demonstrated strong operating performance, solid prices and capital discipline during FY 2018 which resulted in higher profits and record dividends. In FY 2018, the company generated free cash flow of US$12.5 billion and increased its underlying profit by 33 percent to US$8.9 billion as compared to FY 2017.
During the financial year 2018, the company paid record final dividend of US$63 cents per share. In FY 2018, the company reduced its net debt by around US$5bn to US$10.9bn which has put the net debt at the bottom end of the company’s target range of between US$10 and US$15bn.
The company’s minerals Australia business is currently focused on the exploration of iron ore, copper, coal, and nickel. In Australia, the company is having its operation in New South Wales, Queensland, South Australia, and Western Australia.
During FY 2018, the company completed the sale of its US Onshore US assets, proceeds of which were returned to the shareholders through $5.2 billion off-market tender buy-back and through the distribution of special dividend of US$1.02 per share. Recently the company made significant progress in its copper exploration program by identifying potential new iron oxide, copper, gold (IOCG) mineralized system in South Australia.
In the past one year, the share price of BHP Group increased by 10.43 percent on ASX as on 9 January 2019. BHP’s shares traded at $33.140 (-3.382% intraday) with a market capitalization of circa $101.04 billion as on 10 January 2019. While the sector index was up, BHP traded ex-dividend and slipped significantly.
Rio Tinto Limited (ASX: RIO)
Leading global mining group, Rio Tinto Limited (ASX: RIO) recently completed the sale of its entire interest in the Grasberg mine in Indonesia for a total consideration of $3.5 billion, bringing the total divestment funds received in the last two years to over $11 billion. In December, the company also sold its aluminum smelter at Dunkerque, France, to Liberty House for $500 million, proceeds of which will be returned to the shareholders. In November 2018, the company approved a $2.6bn investment in the Koodaideri iron ore which is expected to deliver a new production hub for Rio Tinto’s world-class iron ore business in the Pilbara. As per the company’s chief executive J-S Jacques, Koodaideri will be the most technologically advanced mine the company has ever built, and it can be a game changer for Rio. In November 2018, the company returned US$2.1 billion to its shareholders through an off-market buy-back. During Q3 2018, the company delivered consistent operational performance with Bauxite production of 12.7 million tonnes, Aluminium production of 0.9 million tonnes and mined copper production of 159.7 thousand tonnes. Mined copper production was 32% higher than Q3 2017 driven by the increased production from Rio Tinto Kennecott due to higher grades.
In the past one year, the share price of RIO increased by 0.19 percent on ASX as on 9 January 2019. RIO’s shares traded at $80.130 (+0.137% intraday) with a market capitalization of circa $29.7 billion as on 10 January 2019.
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