Following a period of high volatility for iron ore stocks, things seem to have stabilised. Iron ore prices have been under pressure as China cut back on production. Now, a few months later, it looks like the iron ore price has bottomed and stabilized.
Fortescue Metals, Rio Tinto, and BHP, the biggest miners here in Australia are once again looking lucrative. Therefore, we think this is a great time to consider mining stocks once again. The giant iron ore miners are trading at cut prices with the recent consolidation. Hence, presenting an opportunity for massive upside once again, in the long-term.
BHP Group is arguably the most well-diversified mining and exploration company there is. It is a part of every investor’s portfolio for different reasons. Either for the stable dividends, or to decrease the overall volatility of the portfolio. However, the BHP share price has come under significant pressure for a few months. However, on Monday, the mining giant’s shares added 0.8% gains to $36.73 per share. This means that BHP’s shares are now down by 14% since year-to-date. What happened? One of the causes is further weakness in the iron ore price after curtailed steel production in China hit demand for the base metal. Not only did BHP experience such a pullback, but other mining giants also went through the same ride.
China, which is the world’s second-largest economy, is aiming to cut steel output growth this year to 2020 levels. Although, after expanding around 12% in the first half of this year, the country is now reducing its steel output by 12.2% from August to December to reach its goal. However, we remain optimistic about the rebound of iron ore prices driven by a return in demand by the end of the first quarter of 2022.
Despite the recent event, BHP remains a solid play. The record dividend was the result of operational excellence throughout the year. BHP exhibited solid performance that led to consistent free cash flow generation and an efficient margin of 64%.
Looking forward, BHP is also streamlining its business. Hence, we have seen Woodside Petroleum and BHP announcing their intention to enter a merger commitment to combine their respective oil and gas portfolios by an all-stock merger to create a global top ten independent energy company. This move from BHP will pave the way for the resource giant to move into the Potash business and further focus on developing a net-zero company.
BHP shares trade at $36.58 a share.
Fortescue Metals Group is an Australian iron ore company. As of 2017, FMG is the fourth largest iron ore producer in the world after BHP, Rio Tinto, and Vale. The group has two main areas of operation located within the Pilbara region of Western Australia, the Chichester Hub and Solomon Hub. Plans to develop a third, Western Hub are currently in the developmental stage. In 2017 Fortescue started the exploration of possible mining tenements in South America and other parts of Australia.
At the time of writing, FMG shares are down to $15.80. This latest decline means that the FMG share price is now down about 32% In 2021 alone after reaching a record high of $26.58 it reached at the end of July.
Even though it is quite a decline in the share price, we see it as a great opportunity if you want to acquire a stock that offers an amazing 10% dividend yield. Furthermore, for shareholders, the weakness in the FMG share price has nothing to do with its operations.
The weakness has been a result of FMG going ex-dividend with a yield of about 20% and also due to the iron ore price volatility. FMG at these prices looks very cheap and is a top dividend stock to buy. FMG remains one of the best mining stocks on the ASX.
The recent fall in the materials sector was affected by further slowdown risk in China steel production. What exactly drives the Iron Ore price? The Iron Ore prices crashed following weak Chinese demand. On top of that, China focuses on energy consumption and emissions targets. This involves China continuously cracking down on its industrial activity and reducing production aimed at lowering power usage.
Although these cuts might be just temporary until October 15, we believe that the demand for Iron Ore will only pick up in mid-December. Therefore, we could expect a rebound in the materials sector in the month of December.
Furthermore, China’s second-largest property developer Evergrande has taken the spotlight following concerns that it may default on its US$300 billion debt burden. This headline could damage further commodities prices.
The Rio Tinto share price is tanking on the back of a downward spiral in the price of iron ore.
Even though the recent turmoil on the Iron Ore market, we believe RIO is a fundamentally solid commodities giant. Thus, the group reported consolidated sales revenue for 1HFY21 of US$33.1 billion. That was up 71% from the prior corresponding period. Cash flow also leapt to US$10.2 billion, up 262% year-on-year.
Moreover, Rio declared an interim dividend of $3.76 per share, fully franked. On top of that, we are pleased to see a special dividend of US$1.85 per share, also fully franked.
RIO shares trade at $91.82 a share.