An irrational market has priced many blue chip shares at prices that are well below their intrinsic value. The investor's challenge is to decide which ones will grow our capital and pay us good returns.
According to the latest report by Brand Finance, iron ore giant BHP Group Ltd (ASX: BHP) remains the world's most valuable mining brand. Its share price will not only rise from the ashes of the market sell down, but in my opinion is likely to grow at greater than the market average over the next 5–10 years.
Iron ore is doing fine
At time of writing there are no issues in the iron ore market. Zero. Australian iron ore exporters have not cancelled one shipment, production is continuing apace and last week the iron ore spot price rose. In part this was due to the permanent closure of a Vale mine in Brazil, creating a shortfall of greater than 11 million tonnes in the annual iron ore market.
Future facing ore bodies
I don't know when the future will arrive, but when it does it will be electric.
Electric vehicles, solar panels, wind farms, hydro, standalone power systems, micro grids and mega-batteries. This is undoubtedly the future of the world's energy sectors with the possible addition of nuclear here and there. No matter which path a country takes, it will need both copper and nickel in far greater supply than is presently available.
Not only is BHP the world's largest iron ore miner, it is also the world's third largest copper mining company. It owns 57.5% of Escondida in Chile, the world's largest copper mine. It also owns Olympic Dam in South Australia, one of the world's most significant copper deposits. Olympic Dam also has gold, silver and uranium deposits, all of which are on fire right now.
BHP is also the worlds 3rd largest nickel producer, based on 2018 figures. This includes Nickel West, which was part of the assets BHP picked up with Olympic Dam when it purchased WMC Resources.
Nickel has enjoyed a renaissance of late. In a high risk move designed to improve downstream processing, Indonesia placed a ban on the export of nickel ore wiping approximately 218,000 tonnes out of the global supply chain from January 2020. When added to the growing demand from renewable technology manufacturers, the outlook is positive.
Steady income
At the time of writing BHP share price sits at $25.22. At this price the company's dividend yield stands at a fully franked 8.47%. This is a far better result than you will get from any term deposit, causing your capital to double in value within 9 years. It also brings a tax credit with it and will likely enjoy a level of increase in share price also.
Foolish takeaway
BHP is well positioned to benefit from the current market sell off. The company's businesses in iron ore, copper and nickel are forging ahead in the current climate of fear. Iron ore demand will be solid over the medium term as China, India and Brazil grow their middle class populations. Nickel and copper, on the other hand, will start to grow as renewables become more widely deployed.
Good management has enabled BHP to be sitting on cash at a time when there are many bargains in the market and BHP CEO Mike Henry has made it clear the company will be surveying the wreckage of the share market sell off for acquisition opportunities.
