When it comes to adding a top performing resource company to your portfolio, today’s match up in the Motley Fool’s ASX World Cup may help you narrow down your choices, as big gold miner Newcrest Mining Limited (ASX: NCM) takes on the mighty Rio Tinto Limited (ASX: RIO).
Let’s have a look at the key stats:
|Factor||Measure||Rio Tinto Limited (ASX: RIO)||Newcrest Mining Limited (ASX: NCM)|
|Size||Market cap||$106.1 billion||$8.28 billion|
|Operations||EBIT margin %||15.5%¹||20%²|
|Balance sheet||Debt/Equity ratio||1.25¹||0.70²|
Notes: ¹Full Year to 31Dec 2013, ²Half Year to 31Dec 2013, ³Return on capital employed
Both Rio Tinto and Newcrest Mining are large scale operators in their respective industries which creates economies of scale and supports operating margins. For the most recent reporting periods to 31 December 2013, Newcrest had an EBIT margin of 20%, compared to Rio Tinto’s 15.5%.
It was a strong performance for Newcrest Mining coming off the back of falling gold prices, but the company’s high leverage against gold can add extra risk. In 2013 gold sales made up 83% of the Newcrest’s total revenues. This compares to Rio’s comparatively diversified revenues, which in 2013 came from iron ore (51%), aluminium (24%) and copper (11.5%).
Goal: No goals.
Returns and balance sheet
When it comes to creating value from assets, Rio Tinto outshines Newcrest with a return on capital employed (ROCE) of 8.3% to Newcrest’s 2.4%. Although this return will vary from year to year, Rio Tinto’s higher return on capital employed justifies the higher proportion of debt on its balance sheet.
Goal: Rio Tinto.
With strong cashflows, Rio Tinto again trumps Newcrest with a dividend yield of 3.77%. Rio has grown its dividend reliably over the last five years, from 51.6 cents per share in 2009 (cps) to 213.1 cps in 2013, while Newcrest’s dividend has fluctuated between 12cps and 50cps over the same period.
Goal: Rio Tinto.
With two goals to zero, Rio Tinto clinches the game from Newcrest Mining. Of the two companies, Rio Tinto would be my preferred buy today because of its higher dividend and diversified operations.