- Coronavirus pandemic has plummeted the demand for commodities and disrupted the mineral supply chain globally.
- The recovery in commodity prices underpinned by robust vaccination programs and ease in lockdown restrictions has again lured investors into taking a position in the commodity market.
- All the mining stocks started performing well amid a recovery in commodity demand after an ease in COVID-19 led lockdowns.
The coronavirus pandemic has forced investors to maintain a distance from the resource stocks across the globe. COVID-19 led restrictions forced the miners to halt their operations which has impacted the worldwide supply of minerals. The novel coronavirus has disrupted the entire supply chain of the industry and sapped the demands too. All the industries, including metals and mining, oil and gas, automobile, construction, and industrials, were hard hit by the impacts of coronavirus.
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However, the scenario has started to change from the 2020 end with ease in global lockdowns. The combined efforts of increased vaccination programs, stimulus packages, and ease in travel restrictions have resulted in the gradual resumption of mining operations worldwide. Increased demand for commodities, especially iron ore, in China, the leading consumer, has again put life into the gloomy commodity market.
Commodities started to skyrocket by March 2021, with iron ore, copper, lithium, and other base metal prices touch record high levels. Almost all the iron ore miners, including Rio Tinto and BHP Group, capitalised on the rising iron ore prices, and posted strong March ending quarterly results, despite the effects of COVID-19 and partially halted operations.
ALSO READ: Why are iron ore prices volatile of late?
The recovery in commodity prices has signalled that things may not be as dire as they were several months back. As of now, investors again started to take a position in the commodity market. However, it becomes very challenging for them to choose the correct stock that can perform better and provide better value to their investment in the form of returns.
With a backdrop of this, let us try and understand which ASX-listed resource stock can provide better value to a shareholder.
BHP Group (ASX:BHP) is the world's leading resource company with a diversified portfolio of world-class and low-cost operations globally. The mining giant has exposure to a wide range of commodities, including minerals and O&G.
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The diversified miner serves across the industry's entire value chain, starting from exploration, development, production, and marketing with a worldwide customer base.
Rio Tinto (ASX:RIO) is the world's second-largest metals and mining company with its operations in more than 35 countries. Rio is also engaged in the exploration, development, production, and marketing of various minerals, including copper, iron ore, aluminium, and other minerals.
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The Company uses the most advanced exploration techniques to find new potential sources of minerals and metals globally.
BHP or RIO?
Both the stocks could be a good option for investors interested in investing in the commodity space. The earning margin of both companies is directly associated with the prices of commodities. A slump in commodity prices can erode their respective profits. However, both miners are multicommodity players, and an impact on the prices of a single commodity can be balanced by other commodities. Let us try to analyse the performance of both stocks.
Rio Tinto has produced 65.68Mt iron ore in the first quarter of 2021 while BHP has produced 59.9Mt iron ore from its mines. BHP’s copper production landed at 391.4kt during the quarter while RIO’s copper production was 120.5kt. Rio's iron ore production for the quarter was slightly higher than BHP but the diversified miner has bagged the leading position for the copper producer.
BHP has set a higher iron ore guidance than BHP for the current financial year while the copper production guidance of BHP is almost triple to the full-year copper production guidance of Rio Tinto.
A dividend is a very important aspect of the investment. A dividend is a type of extra income earned by the investors based on the profit made by the Company on a fixed tenure. While comparing the dividend of both the companies, Rio has paid AU$3.86 extra to its shareholders versus BHP. The annual yield of Rio Tinto is 1.57% greater than that of BHP. The dividend pay date for Rio was 15 April 2021 and for BHP was 23 March 2021.
Although both companies have a significant market capitalisation, BHP’s is AU$94.37 billion higher than Rio. BHP’s volume of shares is around 3.27 times higher than Rio. Contrarily, the stock price of BHP is much lower than Rio as of 18 June 2021.
Conclusively, one can clearly say that BHP stock is the top mining dog today, but investors must closely watch the Rio stock too.