Performance Results of Two Metals & Mining Players - RIO and BHP

Mining is among the most well-established sectors of Australia. The sector, which is a major contributor to national GDP, is strongly export-oriented and has pipeline of opportunities in the upcoming years. Let’s look at the performance results released by two major metals & mining players - Rio Tinto Limited and BHP Group Limited.

Rio Tinto Limited (ASX: RIO) – A Global Metals & Mining Player

Record Dividend Payout: Rio Tinto Limited’s interim dividend increased to USD 1.51 a share for the six months to 30 June 2019 from USD 1.27 a share from the same period a year ago, according to a company announcement dated 1 August 2019. The interim ordinary dividend amounted to a total of USD 2.5 billion. The company also declared a special dividend of 61 US cents per share, totalling USD 1 billion, for the six-month period ended June 2019. Both the dividends would be paid in the month of September 2019.

Source: Company’s Report

First Half 2019 Financial Performance: The company reported a 12% rise in underlying earnings to USD 4.93 billion, compared with USD 4.42 billion in the year-ago period, on the back of strong iron ore prices. Further, there were operational problems and concerns regarding RIO's giant Oyu Tolgoi copper expansion project in Mongolia. As a result, for the first half of 2019, the company reported a 6% fall in net earnings to USD 4.13 billion after the company’s impairment of Oyu Tolgoi, an underground copper/gold mine, by USD 800 million. During the first half of 2019, the company reported a 9% growth in consolidated sales revenue to USD 20.7 billion and a 19% increase in underlying EBITDA to USD 10.3 billion compared to the corresponding period of 2018. During 1H 2019, there was a 35% rise in free cash flow to USD 3.9 billion.

Financial Highlights (Source: Company’s Report)

Outlook for 2019: For 2019, the company expects the run-rate from its mine-to-market programme to be approximately USD 0.5 billion, which reflects a decline in the run-rate to USD 0.2 billion for the first half of 2019, owing to operational challenges faced by the company in Pilbara as a result of weather impacts. Its mine-to-market productivity programme is anticipated to post an additional free cash flow run-rate in the range of USD 1.0 billion to USD 1.5 billion from 2021, compared to the previous expectation of USD 1.5 billion.

Moreover, for the financial year 2019, the company expects capital expenditure to be approximately USD 6 billion, while capex for fiscal 2020 and 2021 is projected at approximately USD 6.5 billion. The sustaining capex for each year is now expected to be approximately USD 2.5 billion compared to previous guidance of USD 2 - 2.5 billion per year. For 2019, effective tax rate is projected to be approximately 30%. The company for 2019 projects the Pilbara unit cash costs to range between USD 14 and USD 15 per wet metric tonne, excluding freight expenses.

Additionally, for 2019, RIO’s share of mined copper production is anticipated to be in the range of 550 and 600 thousand tonnes. Refined copper production is projected to range between 220 and 250 thousand tonnes, while diamond production is expected to be in the range of 15 and 17 Mct for 2019. Rio Tinto’s bauxite production is expected to be in the range of 56 and 59 million tonnes. Aluminium production is expected to range between 3.2 and 3.4 million tonnes, while alumina production is expected to be in the range of 8.1 to 8.4 million tonnes for 2019. For the year, Pilbara shipments are anticipated to be in the range of 320 to 330 million tonnes, compared to the previous forecast of 333 - 343 million tonnes.

Stock Information: With a market cap of AUD 36.31 billion and approximately 371.22 million outstanding shares, the stock last traded at a price of AUD 94.555 on 2 August 2019, down 3.328% from its previous closing price.

BHP Group Limited (ASX: BHP) - An International Resources Company

June 2019 Quarterly Report: BHP Group Limited reported an 11% rise in production for the June quarter, on the back of strong performance at a number of petroleum, copper, iron ore and metallurgical coal operations. This included strong operational performance at Western Australia Iron Ore and Queensland Coal, achieving annualised run rates more than 290 Mt (excluding the impact of Tropical Cyclone Veronica) and 48 Mt, respectively, during the June quarter.

In addition, during FY19, the company unveiled first production from the North West Shelf Greater Western Flank-B project. Production was commenced before its schedule, which was also under budget. Moreover, during the reported period, the company gave thumbs up to the Atlantis Phase 3 project in the US Gulf of Mexico. The major projects of the company were under development at the end of the year. These projects were related to petroleum, copper, iron ore and potash. They all have an aggregate budget of USD 11.1 billion over their life. On the other hand, a settlement was reached between the government of Western Australia and BHP Western Australia Iron Ore and its joint venture partners. The dispute was related to a deduction that was made by the companies (BHP and the partners) in the calculation of royalties.

FY20 Production Expectations: Meanwhile, for the fiscal year 2020, BHP expects iron ore production to be in the range of 273 million to 286 million tonnes, which reflects a 1%-6% increase from the production of 270 million tonnes in 2019, which had actually declined from 275 million tonnes for 2018. Additionally, for fiscal 2020, the company is anticipating a decrease in the production of petroleum in the range of 4-9% and a 1-8% increase in copper production and a 3-6% rise in metallurgical coal production.

Operational Performance (Source: Company’s Report)

Stock Information: With a market cap of AUD 118.6 billion and approximately 2.95 billion outstanding shares, the stock last traded at a price of AUD 38.875 on 2 August 2019, down 3.44% from its previous closing price.

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