BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO) are two of the most well-known ASX mining stocks, if not ASX stocks in general. Both BHP and Rio are in the top 15 ASX companies by market capitalisation and have a huge investor following, both in Australia and overseas. Incidentally, both BHP and Rio are listed in multiple exchanges around the world, not just the ASX.
If you're looking to buy into the Aussie resources scene, you have no doubt come across both names. So which is the better buy on today's prices? Lets have a look at both companies and see what we can find.
BHP Group Ltd
BHP is one of the oldest companies in Australia, starting life as Broken Hill Proprietary Co in 1886. BHP used to be a much more diversified miner, but in 2015, BHP spun off many of its 'outer-circle' projects into a new company – South32 Ltd (ASX: S32) and now primarily focuses on four commodities: iron ore, coal, oil and copper. BHP has prioritised a lean and efficient business model, resulting in some of the lowest cost-bases for these commodities you can find. As of 2018, BHP's underlying earnings came in at US $23.1 billion – made up of US $8.9 billion from iron ore, US $6.5 billion from copper, US$3.3 billion from oil and petroleum and US $4.4 billion from coal.
Rio Tinto Limited
Rio Tinto was founded in 1873 in Spain, but many of its primary operations are centred in Australia, hence its ASX listing. Rio is more concentrated on iron ore production than BHP in terms of total operations, but has interests in other commodities as well. Of the US$9.825 billion that Rio posted in underlying earnings in 2018, US$6.51 billion came from iron ore, with US$1.35 billion flowing from aluminium production and US$1.05 from copper and diamonds. The remaining earnings stemmed from other energy and mineral products such as titanium, uranium and boron.
Which is the better buy today?
Both BHP and Rio have made big share price gains YTD so far. The BHP share price is up 21.8%, while the Rio share price comes in at 31.56%. This can be attributed to big rises in the spot price of iron ore, as well as other commodities over 2019 so far.
Both companies have similar dividend yields at current prices (around the 3.9% mark) but on current earnings, Rio looks much cheaper to me. Although there may be further upside in the iron ore price, there is no doubt the shares are looking expensive and I personally will be sitting on the sidelines until iron prices calm down. As resource prices are highly volatile, so too are mining companies' share prices, so I think a better entry point will present itself over the medium-term.
