Kick off: BHP Billiton Limited v Newcrest Mining Limited

Place your bets: Can Newcrest Mining pluck the win from the might of BHP Billiton?

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If you’re looking to add a top resource company to your portfolio, today’s match up in the Motley Fool’s ASX World Cup will help you narrow down your choices as big gold miner Newcrest Mining Limited (ASX: NCM) takes on the top strength of BHP Billiton Limited (ASX: BHP).

The key stats:

Factor

Measure

Newcrest Mining (ASX: NCM)

BHP Billiton (ASX: BHP)

Size Market cap

$7.5 billion

$184.8 billion

Operations EBIT margin %¹

20%

36%

Return Five average ROCE²

14.5%

25.2%

Balance sheet Debt/Equity ratio¹

0.70

0.90

Dividend % Yield

1.2%

3.5%

Notes: ¹Six months to 31December 2013, ²Return on capital employed

Coming out of the tunnels, Newcrest Mining is already on the back foot with the weakness in the gold price, but the biggest challenge for Newcrest is being so heavily exposed to a single, volatile metal (83% of 2013 revenues came from gold).

Operations:

With a decisive EBIT margin of 36% for the half year to 31 December 2013, BHP thumps in an early goal over Newcrest. Not only does BHP have the advantage of diversification, producing several essential resources, but the practical use for those resources means greater ability to forecast and prepare for changes in demand.

Operationally this helps BHP cut costs and maintain margins much more efficiently then Newcrest Mining which got walloped in 2013 in response to falling gold prices.

Goal: BHP Billiton.

Returns:

Volatile earnings makes it difficult to compare the earnings growth of BHP and Newcrest, however with an average return of 25% on capital employed (ROCE) over the last five years, BHP again races past Newcrest by a substantial margin.

Goal: BHP Billiton.

Balance sheet

Although BHP has a slightly higher level of debt to equity than Newcrest Mining, BHP’s high EBIT margin and return on capital make this debt position manageable and worthwhile for investors.

Goal: BHP Billiton.

Full time!

Topped off with an extra goal for having a higher dividend and the result is a decisive 4-0 win for BHP.

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*Returns as of August 16th 2021

Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.

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