After five years of torment, investors in stricken mining giantsBHP Billiton (LSE: BLT) and Rio Tinto (LSE: RIO) arefinally enjoying some respite.Their shareprices are up 10% and 13% respectively over the last month, reversing years of decline. Is there more to come?
Nobody will be getting too excited just yet. BHP Billiton is still down 26% over the last 12 months, Rio Tinto is down 18%. Over five years, performanceis far worse. The commodity sector is famously cyclical butcontrarian investors who have chanced their arm in recent yearshavebeen punished for their haste. Nevertheless,recent signs of life will encourage the optimists to try their luckagain.
BHPs latest operational review showed a drop in petroleum and copper production in the three months to 30 September. Oil was hit by industrial action at Bass Strait and more worryingly, natural field decline across its portfolio, although production has started creeping up again. Copper production was down 13% since June due to anticipated grade decline at Escondido. Iron ore did rise 7% year-on-year to61m tonnes.
Chief executive Andrew Mackenzie said the group ison track to meet full-year production targets and continues to invest to create shareholder value, including acquiring prospective oil acreage in Western Australia and the Western Gulf of Mexico. Investors will be pleased to see signs of positivity, in an industry that has beenrelentlessretrenching, cutting costs and slashing capex.
RIO, To Go
Rio Tinto also suffered a dropin copper production in Q3, down a brutal 24% to 115 kilotonnes. Increases in iron oreshipments and production of17% and 12% respectively were littlecompensation. Lowercopper production may help to put a floor under the recent price plunges butit is the kind of slip-up Rio doesnt need given headwinds elsewhere.
Trading at just 7.62 times earnings, Rio Tinto looks more temptingly valued than BHP Billiton, which trades at a surprisingly pricey 14.47 times earnings. It is doubly surprising given that Rio Tinto has performed relatively better over the last few years. Of the two companies, this is the one I would buy, despite a low yield of 5.43%, against a whopping 7.62% at BHP. Although Rios recent copper miss does concern me.
China On My Mind
I still think it is too early to dive back into commodities: China is still slowing and metals and mineralsprices are still falling. Chinese Premier Li Keqiangs recent statementthat he would not defend to the death 7% annual GDP growth was an admission of what everybody knows: the glory growth days are gone.
They wont be coming back, either. Japan is easing. China is easing. The European Central Bank is easing. The Bank of England is running scared of hiking interest rates. US Federal Reserve doves are in the ascendant again. But none of this isable to trigger sustainable global growth.
At todays yields and valuations, BHP Billiton and Rio Tinto are tempting buys for long-term investors. Justdont expect a rapid return to former highs.
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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.