Are These Two Blue-Chip Miners The Conviction Ones? – BHP And RIO

In a volatile market it is considered safe to bet on the blue-chip stocks. It is when heavyweights get impacted, the markets are pushed to lower levels. Especially in this session where miners and financials drove the drop on the ASX, two blue-chip companies got affected and slipped on the ASX.

Both the companies are from the metals and mining sector; however, both are big companies with conviction. BHP Billiton Limited (ASX: BHP) has identified a potential iron oxide, copper, gold mineralized system, located at Olympic Dam in South Australia. The company has announced return of US $10.4 billion from US onshore divestment and returned around US $6.3 billion to shareholders.

In the medium term the company has a net debt range of US $10-15 billion in the medium term, with capex below US $8 billion for FY 2019 and FY 2020 signifying a disciplined capital allocation process. The company’s focus is on low cost, high quality assets that generate strong cash flows through the entire cycle.

BHP has reported strong financials for the year FY2018 with free cash flow of US $12.5 billion and underlying profit increasing by 33 percent to US $8.9 billion. From the funds obtained from the sale of onshore US oil and gas assets, the company has rolled out a share buy-back program and special dividend being paid to shareholders and recorded final dividend of US63 cents per share. As at December 7, 2018 with the trade tensions the share price of BHP came down by 0.414% to $31.270.

On the other hand, Rio Tinto Limited (ASX: RIO), following the approval of a $2.6 billion in Western Australia investment in the Koodaideri iron ore mine is to develop its most technologically advanced mine. The mine once complete will have an annual capacity of 43 million tons which will reinforce the production of the Pilbara Blend. The company flagged an off-market buyback on 20 September 2018 for Rio Tinto Limited’s shares announced to the Australian Securities Exchange and the market price was A$81.0268. To improve its productivity and enhance cash flow generation company is continuing to pursue all opportunities with disciplined capital allocation to deliver superior returns to shareholders. The company’s Pilbara shipments in the year 2018 are expected to be at the upper end (i.e. 330 to 340 million tons 100 percent basis) of the existing guidance range.

However, in full year 2018 raw material cost headwinds are expected to have a $400 million negative impact on EBITDA as compared to 2017. RIO on the financial front is strong with a P/E ratio of 10.100 and EPS of 7.299 AUD. However, due to the trade fears and falling bond yields markets are impacted and the share price of RIO traded at $72.340 as at December 07, 2018.


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