Miners as looked through three stocks: RIO, OZL and S32

  • Dec 20, 2019 AEDT
  • Team Kalkine
Miners as looked through three stocks: RIO, OZL and S32

The Australian mining sector has approximately soared by 11% from last six months lowest dip contemplating S&P/ASX 300 Metals and Mining at AUD 4097.713 on 18th October to AUD 4539.866 on 17th December 2019 as shown below.

Source: Australian Stock Exchange

The index revived after tumbling by 13% from AUD 4769.269 on 23rd July to AUD 4141.069 on 27th August 2019. Due to the hope of trade easing between US and China, there has been a rise in iron ore prices backed by strong demand of steel from the Asian market and increase in other commodity prices like copper and gold to mention a few.

In the milieu of which it is quintessential to analyse the market performance, in line with the Australian metal and mining companies: -

Rio Tinto (ASX:RIO) is a multinational and one of the biggest metals and mining company. It has a diverse portfolio across 35 countries and six continents. It produces iron ore, copper, diamonds, aluminium, industrial minerals (salts, borates and titanium dioxide), gold, and uranium as major products divided into four group Aluminium, Copper & Diamonds, Energy & Minerals and Iron Ore. The company is strongly present in Australia and North America followed by Asia, Europe, Africa and South America.

The company's share price movement shows a strong correlation with S&P/ASX 300 Metals and Mining index, as shown below.

Comparison of S&P/ASX 300 Metals and Mining index and Rio Tinto share price:

Source: Australian Stock Exchange

The share price has increased by 25% from last six months lowest dip at AUD 82.78 on 26th August to AUD 103.3 on 17th December 2019. The rise in share price is due to the investment announcement of AUD 1 billion for Pilbara iron ore mine and USD 1.5 billion at Kennecott copper operations. It would support the second phase of the South Wall Pushback project, where the first phase of the project is expected to commence by 2021.

The company’s FY19 nine-month operational performance was better than the previous year by +3% for bauxite and +30% for IOC iron ore pellets and concentrate. However, it has declined by -3% for Iron ore, -1% for aluminium, -4% for copper. Also, the guidance remains same for Pilbara Iron ore shipments and copper mining however, it reduced for bauxite, aluminium and alumina.

As on 20 December 2019, the company’s annual dividend yield was recorded at 4.6% with P/E ratio of 8.940x and EPS of AUD 11.435. EBITDA margin of the company has remained almost constant in the range of 44 % and 42% for FY17 and FY18 respectively. With USD 13.5 billion of cash returns declared to shareholders and 19% of return on capital employed (ROCE) as of FY18. Its 52 weeks high and 52 weeks low stand at AUD 106.922 and AUD 71.522, respectively, and has a market cap of AUD 37.95 billion. RIO stock was trading at $102.830, up by 0.557% (as on 20 December 2019, at AEDT 1:13 PM).

Oz Minerals Limited (ASX: OZL) is a modern copper-focused mining company based in South Australia. The company was formed in 2008 after the merger of Oxiana and Zinifex – An Australian non-ferrous metals mining company. The company own and operates Prominent hill and developing Carrapateena Cu-Au mine along with undeveloped West Musgrave Cu -Ni project in Australia, whereas in Brazil it has Antas, Pedra Branca and CentroGold project.

Oz Minerals too is following the path similar to the index S&P/ASX 300 Metals and Mining (Industry) as shown below.

Comparison of S&P/ASX 300 Metals and Mining index and Oz Minerals Limited share price:

Source: Australian Stock Exchange

The share price has increased by 33% from last 6 months lowest dip at AUD 8.68 on 4th September to AUD 11.54 on 17th December 2019. The increment in share price during this period was not constant but with some ripples due to the announcement related to the delay of Carrapateena production by a month, Prominent hill and Carrapateena ore reserves statement and approval of Carajas Hub strategy to mention few. The stock dipped by 5% on 18th December 2019 following news of the transfer of Musgrave project to the joint venture of Cassini Resources Limited (ASX:CZI) and Oz Minerals by Traka Resources Ltd (ASX:TKL).

The company’s FY19 nine-month operational performance has been in line with the guidance for copper, however gold production is expected to increase by 3% of guidance due to the increased Antas mine production in Q3 2019. The maximum company project is expected to be operational by 2024, as shown in asset timeline below.

Source: Company Quarterly Report

The company has annual dividend yield of 2.16 with P/E ratio of 25.120x and EPS of AUD 0.424. EBITDA margin of the company has reduced from ~53% in FY17 to ~48% in FY18 with dividend per share as 23 AU cents in FY18, increment of 0.3 AU cents from the previous year. Its 52 weeks high and 52 weeks low stand at AUD 11.720 and AUD 8.250, respectively, and has a market cap of AUD 3.45 billion. OZL stock was trading at $10.860, up by 1.972 percent (as on 20 December 2019, at AEDT 1:09 PM).

South32 Ltd (ASX:S32) is a metals and mining company with a diversified portfolio across Australia, South America and Southern Africa. It also has a development option of high-grade zinc, lead and silver project in North America. It produces bauxite, energy and metallurgical coal, alumina, aluminium, nickel, silver, lead, zinc and manganese product.

Like Rio Tinto it too follows S&P/ASX 300 Metals and Mining index closely as shown below.

Comparison of S&P/ASX 300 Metals and Mining index and South32 Ltd Limited share price:

Source: Australian Stock Exchange

The share price has increased by 20% from last 6 months to its lowest dip at AUD 2.41 on 9th October to AUD 2.88 on 17th December 2019, with ups and down in between due to the daily buy-back of share, removal of South32 Ltd from S&P/ASX 20 index and change of interests of the substantial holder.

The company’s FY19 operational performance has been reported better than the previous year by 13% for Alumina, 2% for thermal coal, 9% for metallurgical coal, 3% for payable lead production and 39% for payable zinc production, whereas, manganese ore and alloy, nickel and silver production reduced by 2%, 15%, 1% and 7% respectively from previous year. Production guidance for FY20 is reported more than FY19 except for Cannington, Cerro Matoso, South Africa Manganese mines.

The company has annual dividend yield of 3.95% with P/E ratio of 26.050x and EPS of AUD 0.110. EBITDA margin of the company has reduced from 26.2% in FY18 to 22.2% in FY19 with earning per share as 19.7 US cents in FY19, a decrease of 6 US cents from the previous year. Its 52 weeks high and 52 weeks low stand at AUD 3.973 and AUD 2.360, respectively, and has a market cap of AUD 14.09 billion. S32 stock was trading at 42.805, down by 1.923 percent (as on 20 December 2019, at AEDT 1:07 PM).

Good Read: Key Contributors from Mining Space – BHP, S32 and RIO


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