Record Production Can’t Save BHP Billiton plc And Rio Tinto plc On Its Own

Harvey Jones discovers why BHP Billiton plc (LON: BLT) Rio Tinto plc (LON: RIO) are happy to see metals prices fall

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

opencast.mining

Rio Tinto (LSE: RIO) (NYSE: RIO.US) produced another positive set of production figures in its third quarter results, released today, cheering markets and driving the share price up nearly 2.5% in early trading.

There was plenty to celebrate, with record iron ore shipments, and record production and rail volumes.

Copper output only rose 1% to 151,800 tonnes, but Rio still expects to produce 615,000 tonnes of copper this year, up from its previous guidance of 585,000.

Way to go, Rio.

China Surprise

All the miners, including Rio’s fellow FTSE 100 giant BHP Billiton plc (LSE: BLT) (NYSE: BBL.US), have benefited from surprisingly positive Chinese data this week, which showed exports and imports up 15.3% and 7% respectively in the year to September.

Investors have dumped mining stocks in recent months over fears of a Chinese hard landing, but this trade data has persuaded bargain hunters to sharpen their elbows.

The cyclical mining sector has been hit hard by the recent slide in market sentiment, as investors worry over the global recovery, and the impact of US Federal Reserve tightening on emerging markets.

I sold my stake in BHP Billiton early this year, for exactly that reason. With the stock down nearly 15% since then, I have no regrets.

But is now the time to leap back into this sector?

Heavy Metals

The answer depends on how you view BHP and Rio’s current production strategy. Ramping up supply as demand begins to fall can only mean one thing for metals prices, but there is a method to their apparent madness.

Both companies have the scale to cope with falling commodity prices, by investing billions in impressive cost-cutting measures, of which the most eye-catching are the new 3km robo-trains snaking through North Western Australia, part of a drive to fully automate their cargo systems. 

Automation has helped BHP cut its iron ore production costs from $100 to $30 per tonne. Smaller miners can’t compete at this level, and falling metals prices could drive many rivals to the wall.

Saudi Arabia appears to be following a similar short-term low pricing strategy, in a bid to out-gun tar sand and oil shale producers.

Dig Deep For The Miners

Ramping up production may drive metals prices even lower but, combined with efficiency savings, it could make sense.

Investors in BHP Billiton and Rio Tinto should brace themselves for more short-term pain, but the ultimate reward could be long-term market dominance.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young mixed-race woman jumping for joy in a park with confetti falling around her
Investing Articles

If I’d invested £5,000 in a Nasdaq index fund 5 years ago, here’s how much I’d have now

The Nasdaq index keeps hitting new all-time records in 2024, as US tech stocks fly. How much could I have…

Read more »

A senior group of friends enjoying rowing on the River Derwent
Investing Articles

£500 to invest a month? Consider aiming to turn that into a £20,000 passive income like this!

With a regular monthly investment, it's possible to build a large and steady passive income for retirement. Royston Wild explains.

Read more »

Senior Couple Walking With Pet Bulldog In Countryside
Investing Articles

As retirement needs soar 60%, here’s how I’m building wealth with UK shares

A regular investment in UK shares and funds could help Brits create a large and lasting pension. Our writer Royston…

Read more »

Investing Articles

I’d buy Games Workshop shares before they reach the FTSE 100!

Games Workshop shares look likely to join the FTSE 100 soon. Here’s why I think investors should consider buying the…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Could me buying this stock with a $2.5bn market-cap be like investing in Tesla in 2010?

Archer Aviation (NASDAQ:ACHR) stock's nearly doubled so far in November. Could this start-up be another Tesla in the making?

Read more »

Investing Articles

5,000 shares of this UK dividend stock could net me £1,700 a month in passive income

Our writer calculates the passive income he could earn from holding a significant number of shares in this powerful dividend-paying…

Read more »

Investing Articles

9.3%+ yields! 3 FTSE 100 dividend giants to consider buying

Our writer examines a trio of high-yield FTSE 100 shares and explains some of the opportunities and risks he sees…

Read more »

Investing Articles

As the Kingfisher share price drops on Budget fallout, should I buy?

The Kingfisher share price was on a strong 2024 run until the DIY group warned us of the possible effects…

Read more »