PricewaterhouseCoopers LLC unveiled its annual review of the mining industry. The report indicated that revenues for the top 40 mining corporations added 32 percent in 2010, to gross an excess of $400 billion. Net profits for those same companies were up 156 percent to reach $110 billion, while operating cash flows were higher by 59 percent. Total assets closed in near $1 trillion with net debt reduced to $46 billion. The growth continues to be inspired by the construction and needs of emerging markets, particularly in China and India. For that reason, companies that focus on mining minerals used in construction of cars and homes are well positioned to benefit from the increasingly widened horizons.
BHP Billiton Limited (ADR) (BHP)
According to the report, BHP Billiton Limited is the largest miner by a long slide. The company is a diversified natural resources company, operating nine customer sector groups, among them: petroleum, aluminum, base metals (including uranium), diamonds and, stainless steel materials, iron ore, manganese, metallurgical coal and energy coal. During the fiscal year ended June 30, 2010, BHP realized an annual production volume of 158.56 million barrels of oil equivalent, produced 1.2 million tons of aluminum, 13.9 million tons of bauxite and 3.8 million tons of alumina. In March of last year, the company completed the acquisition of Athabasca Potash Inc (API). Potash, a type of fertilizer that helps to increase harvest, has been on the rise lately as farmers concentrate on richer harbests to meet growing demand. The price was recently pushed higher as a result of the smaller harvests against higher demand. Potash will likely continue to be in demand.
Rio Tinto Plc ADR (RIO)
Rio Tinto is an international business with operations in more than 50 countries world-wide. It has its hand in each stage of metal and mineral production. Among mining companies, it is the third largest with a market cap of 133.75 billion, but stock prices remain somewhat affordable considering the strength and the diversity of their offerings. Rio produces aluminum, copper, diamonds, coal, iron ore, uranium, gold and industrial minerals (borates, titanium dioxide, salt, talc and zircon). Rio, which is made up of wholly and partly owned subsidiaries and joint ventures, is involved with open pit and underground mines, mills, refineries and smelters, as well as a number of research and service facilities. They have a P/E ratio of 9.44 and continue to trade significantly but not dramatically beneath 52-week highs. Price and production increases in iron ore were major drivers of growth for Rio Tinto according to the report.
Vale, like the other mining stocks is heavily reliant on the Chinese market for growth. Currently, the company alongside the above two listed above is working to meet expected demand from emerging nations, specifically demand for Iron Ore. This strategy will be helpful for Vale so long as they don’t flood the market with Ore and drive down prices. China currently imports 60% of its iron ore, but should they increase domestic production beyond current levels, that number could go down, shrinking the margins for Vale. At current levels estimated shipments in 2014 are expected to rise to 341 million tons, according to Trefis. If domestic Chinese production of Iron Ore does push higher though, this number could fall to 320 million tons. If it does that Trefis believes share prices will increase by only 20 percent of their current market value as compared to the 30 percent they currently predict.