Despite the volatility and nervousness surrounding the mining sector over the past 18 months or so, a significant number of Australian shareholders still have exposure to Australia's biggest miners.
For every seller there's a buyer, and there's a person or entity behind every last one of Rio Tinto Limited's (ASX: RIO) and BHP Billiton Limited's (ASX:BHP) combined 3.6 billion shares on issue.
Which of these shareholders is the shrewdest? Here's a quick look at each company's financial position – all figures are taken from the most recent report to 31 December 2015.
Rio Tinto Limited (ASX: RIO)
Iron ore – 73% of segment earnings in full-year 2015, cash cost of US$14.9 per tonne at Pilbara mines, the company's largest. Gross iron ore revenue of US$15,305m divided by 270.9m tonnes of ore shipped suggests an average realised price of US$56.50 per tonne.
Bauxite, Alumina, Aluminium – 21% of segment earnings in full-year 2015, average realised aluminium price of US$2,058/tonne.
Diamonds, coal, copper, titanium, uranium, other operations – 6% of segment earnings in full-year 2015.
Rio had $23 billion in debt, $9.4bn in cash, and $3bn worth of inventory. During the 12 months to 31 December 2015, Rio had an operating cash inflow of $9.4bn, but a total cash outflow of $3bn, due to $4.6bn in asset purchases, $4bn in dividends, $3.5bn in debt repayments, and $2bn in share buybacks.
BHP Billiton Limited (ASX: BHP)
Iron ore – 34% of revenue, but 38% of segment earnings at the Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA) level. Cash costs of US$15.21 per tonne in Western Australia mines, the company's largest. Average realised price of US$43/tonne in the six months to 31 December 2015.
Copper – 23% of revenue, and 22% of Group EBITDA. Cash costs of US$1.45 per pound at Escondida mine. Average realised price of US$2.12 per pound.
Coal – 13% of revenue, but 4% of EBITDA. Average cost of US$59 per tonne, average realised price of US$82/tonne, US$67/tonne, US$49/ tonne for hard coking coal, weak coking coal, and thermal coal respectively.
Petroleum – 28% of revenue, but 37% of EBITDA. Average realised price of US$42/barrel for oil, US$2.35/mscf for US natural gas, and US$8.24/mscf for LNG.
BHP has US$36 billion in debt, US$10bn in cash, and $3.9bn in inventory. Unlike Rio, the company had a net cash inflow of $4bn, primarily due to operating cash flow of $5.2bn, borrowings of $7bn, asset purchases of $4bn, debt repayments of $1bn, and dividends of $3.2bn.
Foolish takeaway
This is a simple comparison, but there are a few things to take away nonetheless. Although BHP is far more diversified than Rio Tinto, Rio delivered 50% more in cash from operations than BHP in the most recent period. While Rio's current expenditure is unsustainable without higher debt or lower asset purchases and a weaker dividend, better cash flow gives the company more flexibility – or at least appears to.
However, BHP has significant exposure to a wider range of commodities, and this gives the company more options in allocating its capital. It also gives the company a better chance of bouncing back as the outlook for iron ore continues to look poor. For these reasons, if I had to buy a miner, my preference would lean towards BHP.
