Mining For Copper

Ash is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Pulling metals out of the ground is nothing new, and it has been done for many years. Copper is one of those things that the many mining companies around the world look for. This chemical element is known for its high thermal and electrical conductivity, something that makes it valuable for construction, plumbing, and electrical work around the globe.

Mining companies, especially the big publicly traded ones, tend not to focus solely on copper. The three companies in this article look for various other elements, something that gives them more diversity for our portfolios. The companies that we’ll take a look at are Rio Tinto Group (NYSE: RIO), BHP Billiton (NYSE: BHP) and Freeport-McMoRan (NYSE: FCX).

Rio Tinto

Rio Tinto’s HQ is in the UK, but the company is a multinational British-Australian miner that combs the planet looking for copper, aluminum, gold, diamonds, coal, uranium and more. They have been incredibly successful over the company’s long life, and I believe that their success will continue for many years to come.

Sales at the mining giant have grown from $9.23 billion in 2003 up to $60.54 billion in FY 2011. Net income during that same period grew from $2.16 billion up to $5.84 billion. Assets at Rio Tinto have also grown over the period from $24.08 billion to $119.55 billion in FY 2011. Those assets, the mines, are spread throughout the world with more focused amounts in Australia and Canada, the current mining capitals of the world.

This company has a pretty high P/E of 24.9 at the time of writing, something worth looking out for. The price to sales ratio is relatively low compared to industry though at just 1.93. Price to book isn’t too high either at 1.85. I like the low debt/equity ratio that the company has (just 0.38), and although I prefer no debt, when a company is the size of Rio Tinto with various projects around the world, I think they’re pretty secure.

Of course, there are some negatives with the company. I don’t like the low ROE, ROA and ROC, which sit at 6.99%, 3.9% and 4.8%, respectively. Those numbers lag the industry. If you are planning an investment you should also be aware of the foreign exchange risk that is present in such a large, multinational company.

BHP Billiton

BHP Billiton, like Rio Tinto, is a British-Australian mining monster. This company mines copper, diamonds, gold, aluminum, silver, petroleum and even natural gas. BHP Billiton is the largest mining company in the world if you measure based on 2011 revenues.

If we look at the decade-long growth in revenues at BHP, we will see they went from $16.55 billion in 2003 up to $72.23 billion in FY 2012. Net income has managed to grow from $1.58 billion up to $15.42 billion. Assets have also been on the rise. BHP Billiton now has $129.27 billion in assets spread around the globe. Like Rio Tinto, these mines are focused in Australia.

The P/E ratio at BHP Billiton is 13.3, which makes it very nicely priced! Price to sales for this company is below the industry average at 2.67 and the price to book value is 1.87, right around the same as Rio Tinto's. The debt to equity ratio is at 0.43, another relatively low debt company if we choose to invest.

Unlike Rio Tinto, BHP Billiton provides some great investment return figures. The ROE, ROA, and ROC come in at 25.14%, 13.4%, and 16.5%, respectively. All three of those figures outpace the industry, indicating that BHP Billiton is atop their game.

Freeport-McMoRan

Freeport-McMoRan is definitely the smallest company in the group and unlike the previous two, this one is based in the United States. Also unlike the other two, they focus on only three products: copper, gold, and molybdenum.

With Freeport-McMoRan being a smaller company, these numbers may seem a little underwhelming. But the company is growing, and growing quite nicely for a non-Australian miner. Sales were $2.21 billion in 2003 and made it up to $20.88 billion in 2011. Net income has also been on the rise; it was $197.25 million in 2003 and it made a massive jump to $4.56 billion by the close of FY 2011.

Looking at the price ratios for Freeport-McMoRan is quite appealing. The company has a P/E of 10.9, the lowest of the bunch. Price to sales is at 1.81 and price to book is at 1.86. This company is looking quite well-priced based on those numbers. The debt to equity ratio is a lot smaller at Freeport-McMoRan than it is at BHP or Rio Tinto, sitting at just 0.21.

A quick look at the investment returns shows us that Freeport-McMoRan is outpacing Rio Tinto but lagging behind BHP Billiton. ROE is 18.08%, ROA is 11.8%, and ROC is 14.5%.

Who to Buy?

I like BHP Billiton for the security of the large investment. They’re the biggest company in the bunch, their investment returns are beating the industry, and they are continuing to grow. BHP Billiton also pays a 2.91% dividend yield, a pretty decent return.

I also like Freeport-McMoRan ,as they have the potential to grow a lot more that the other two companies.

If I had to go buy/hold/sell on the three it would have to be BHP Billiton/Freeport-McMoRan/Rio Tinto.  I’m not saying there’s anything inherently wrong with Rio Tinto, just that it doesn’t, at least in my eyes, present an investment like BHP Billiton and Freeport-McMoRan. 


Ash1402 has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure