Mining Stocks - Looking at Anglo American and Rio Tinto
Here are a couple stocks I have been following. Will these stocks ever get revalued or was the inflation cycle super short this time? These are questions that are very hard to answer if not impossible. What is possible is looking at the fundamentals of a business and analyzing the current competitive landscape. Grasping the above areas will give us the ability to determine if Anglo American and Rio Tinto are high quality companies and should be added to a diversified portfolio.
Anglo American:
They have a strong competitive advantage in the diamond world, with De Beers. If you have ever been ring shopping they are the biggest player. But unfortunately its only 4% of their revenues.
Iron ore 47%
Copper 19%
Platinum 26%
Nickel 5%
Diamonds 4%
They have a mind for innovation and technology. Using innovation to differentiate themselves, create operational efficiency and above average returns.
Highly focused on global trends with good management that won’t chase price. They also have a culture of servant leadership and actively manages asset portfolio to improve overall competitive position. They had two fatalities last year but they have a task force focused on eliminating all casualties and injuries.
There mission statement:
“Secure, develop and operate a portfolio of high quality, long life resource assets. We then apply innovative practices and technologies in the hands of our world class people to deliver sustainable value for all our stakeholders.”
The valuation also looks good with a $3b net free cash flow (NFCF) nine year average and a $42.7b market cap. The earnings are stable except 2014 and 2015 with a flat or small loss.
Rio Tinto:
High quality employees and assets, low leverage. Safe efficient and well run business. Delivering High quality products to customers. They Invest in sustaining, innovating and growing. The company is a leader in technology to find mines. Providing products necessary for human progress. They produce 30% of the worlds borax and also has a competitive advantage in aluminum.
They are getting a lot of flack for the Serbian lithium mine though. Would probably be a good idea to let this project go. The CEO is a finance guy so you will get good returning projects but probably not as much on the social front.
Disciplined on price they pay for mines. Focused on developing current mines. Intelligent and excited when they see great returns. Have lots of projects in the pipeline: lit, copper, iron ore.
Aluminum is a replacement for copper in the electrical world, which should be a great place to be if cars go electric.
Revenue by segment US$:
Iron ore $15b
Aluminum $10b
Energy and minerals $7b
Copper and diamonds $5.5b
Average dividend over last 22 years is $2 a share. That’s a 2.7% dividend at current prices. Better than current US index fund dividend return. The fifteen year average dividend is $2.60 or 3.6% at current prices. The ten year average is $3.30 or 4.5%. Excluding special dividends, the ten year average is $2.4 or 3.5%.
Shares outstanding have been consistent at 1.9b in 2009 1.6b in 2021.
Dividend payout ratio is usually over 50%.
$20b long term debt and $97b total assets.
$6.7b NFCF fifteen year average with a $94b market capitalization.
I also have been following Freeport-McMoran and Vale but I will save that for next weeks post.
