The ASX 200 closed lower on Tuesday, dropping 18 points or 0.24% to $7,434.20, as financials dipped, whilst gold miners lifted as the precious metal held steady at 2-month highs. With the recent corrections iron ore stocks have had and the robust gold outlook given the high inflation data that keeps coming in, mining stocks should now be in consideration.
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.
The Northern Star share price has leapt into the green since trade commenced this month and now trades at $10.13 apiece. NST has been crawling higher these past few days after hitting a low of less than $8 a few weeks ago.
Gold miner, Northern Star is one of Australia’s leading ASX-listed precious metal producers. With a resource base located in the gold regions of Western Australia. NST is currently involved in the exploration, development, mining, and processing of gold deposits. The company also sells refined gold derived from the Jundee, Kundana, Kanowna Belle, Paulsens, and South Kalgoorlie operations.
Whilst there has been no market-sensitive information for the gold mining company, it is worth noting that the price of gold has popped higher since we started the month. After trending downwards lately, gold bottomed out at a low of US$1,723/oz on 30 September.
The recent gain in gold has certainly got investors’ attention and has pushed the ASX gold basket higher over these past few days.
If you want to play the gold rebound, do not look any further. Northern Star is an ASX resources share that is in a unique position. Its in the business of mining and processing gold deposits. As such, it must accept the spot and/or forward price of gold in the commodity markets and is considered a price taker. This means NST share price can fluctuate with the volatility in the underlying commodity markets.
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 $88.98 a share.