Top 2 Mining Stocks To Consider For Your Next Investment
The ASX 200 added 135.50 points or 1.88% to 7,332.20 on Thursday. Today, the market is snapping two sessions of consecutive losses amid broad-based gains. Strong Iron ore prices lifted the mining heavyweights today and the ASX rebounded.
Our List of Top 2 Mining Stocks Of The Week
As the materials sector appears to rebound earlier than expected, we think that it is worth considering these two mining stocks:
Rio Tinto (ASX: RIO)
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 cracks down on its industrial activity and reduce 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 onward the month of December.
Furthermore, China’s second-largest property developer Evergrande has taken the spotlight this week following concerns that it may default on its US$300 billion debt burden. This headline could damage further commodities prices. hence, in terms of relevance to Iron Ore, the Chinese property and infrastructure sector account for 55% of its steel consumption.
Accordingly, the Rio Tinto share price is likely tanking on the back of a downward spiral in the price of iron ore. In fact, the spot price of iron ore has come down 47% since mid-July from highs of around US$222/Tonne and now trades at US$117.3/Tonne. However, since the beginning of this week, iron ore prices rebounded with yesterday’s impressive 10% soar.
Following the same path, RIO shares are now trading up, closing at $100.18 for the day.
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.
South32 (ASX: S32)
South32 is a global diversified metals and mining company headquartered in Perth. The company operates across five countries. It has a portfolio of quality assets that produce alumina, aluminium, coal, manganese, nickel, silver, lead and zinc.
South32 is a BHP spin-off and S32 shares were first listed on the ASX in 2015. S32’s strong ASX standing has been confirmed in the ensuing years. South 32 is now one of the largest listed companies on the ASX with a market capitalisation of $15.8 billion.
The S32 share price has been one of the most-watched by the community of investors this morning. Hence, we have seen an important inflow of volumes that sent the share up by 4.13% today. Actually, South32 has been in the spotlight as the company has just released an acquisition announcement.
The mining giant share price could be on the move today after S32 announced the acquisition of an additional 25% shareholding in Mozal Aluminium in Mozambique from MCA Metals. According to the release, South32 has exercised its pre-emptive rights to acquire the additional stake for US$250 million. This brings its ownership of the smelter up to 72.1%.
This acquisition increases S32 annualised equity share of aluminium production by 15% to 1,138kt. The release explained the transaction represents an acquisition multiple of 3.6x FY21 EBITDA. Hence, the firm has the necessary liquidity to proceed as it had a net cash balance at the end of August of US$553 million.
With this deal, S32 expect to deliver strong returns. The firm is also working with its partner at Alumar in Brazil to investigate a restart of the smelter using renewable energy. Both investments are consistent with the company’s strategy to increase its exposure to the base metals required for the energy transition to net-zero emissions.
At the moment of writing, the South32 share price is up 36% in 2021.