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BHP Billiton Limited and Rio Tinto Limited behind the push to an almost ten year high

Credit: iStock

Booming commodities prices have pushed up Australian mining companies, as well as many smaller miners, leading to the market almost reaching a 10 year high. But, investors should not be complacent as the performance of the Australian share market will always be on the back end of overseas jitters, in particularly from Wall Street. Remember February this year when the US market fell 10% in a week, then rallied back more than half of the losses? The Australian market followed a similar pattern but dropping 12% before recovering some of the losses, and is now back to where it was.

In a year BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) have both risen around 39% and year to date 11% and 9% respectively at the time of writing. Many smaller miners have seen triple digit rises in share prices, and in some cases are now trading at excessive valuations. The mining index, S&P/ASX 200 Materials (ASX: XMJ) is up 5% year to date and 27% in a year.

Many large miners are on reasonable price-earnings- ratios (PER) relative to the median forward PER of the mining index of 14.6x. BHP is on 14.6x and Rio Tinto, 13x.

The reason for the BHP and Rio Tinto doing so well may also be a result of an unrelated reason. The Banking Royal Commission may have led to fewer funds going into bank shares, and instead, are being directed to big miners, seen as a “safe” place to put money. Some miners are even paying a dividend yield with BHP on a current annual yield of 3.8% and Rio paying 4.5%, which are both fully franked.

Other miners that have performed well in a year include South32 Ltd (ASX: S32) up 45%, Alumina Limited (ASX: AWC) up 62% and BlueScope Steel Limited (ASX: BSL) up 52%, at the time of writing.

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Motley Fool contributor Rosemary Steinfort owns shares of BHP Billiton Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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