Synopsis
The mining industry has been in a downwards slump for the last four years. However, this year, in particular, is very alarming because China the world biggest consumer of all things ‘commodities’ is in a slowdown.
Here is the ‘Year-to-Date’ chart of the UK mining industry:
The mining sector index took a hammering; the average loss on a mining stock came to 37%. Within the index, it included two of the biggest miners in the name of RIO TINTO and BHP BILLITON.
Their performance year to date has been on a downwards slope, with BHP down by 26.7% and RIO down by 25.8%.
If the mining industry suffers capitulation meaning the weak performers goes ‘belly up’. We should see the big miners like BHP and RIO be able to survive the downturn (pending on a surprise) and possibly thrive if supply tightens back to levels closer to demand.
A quick summary
|
|
BHP Billiton |
Rio Tinto |
|
Market Cap. (£BN) |
60.2 |
43.7 |
|
Share price (£/share) |
9.83 |
21.15 |
|
Share price at peak |
26 (2011) |
46.33 (2011) |
|
Sales ($ BN) |
43.5 |
47.6 |
|
Net profit ($ BN) |
4.4 |
6.5 |
Both are diversified miners, with Rio’s majority sales coming from iron ore and aluminium (two-thirds), and BHP has 71% of sales from iron ore, oil & gas and copper.
Seven things to take on board when doing due diligent on a mining company
Here are seven things you need to know about BHP and RIO TINTO:
1. Commodities prices matter
When commodities prices start falling, the mining sector follows in tandem, even ‘big fish’ miners like BHP and RIO do the same:
Rio:
