The ASX surged higher today and closed 0.5% in the green. The strong performance was led by the Materials sector gaining by up to 1.2% and the energy sector gaining by 0.8% on the back of bullish oil prices that went above US$70 a barrel. The ASX 200 closed at 7522.9 points.
There has been a lot said about iron ore prices and the big miners of Australia, namely, RIO, FMG, and BHP. All 3 stocks have been in the news for different reasons, however, all three of these companies have reported record numbers as far as financial performance goes and as a result, extremely robust dividend payouts for FY21. In addition to the iron ore industry, lithium has been one that has kept climbing given the commodity’s importance in the battery industry.
Rio Tinto is a well diversified global mining powerhouse that is second in global size, behind only BHP. The firm is dual listed on the ASX and London’s LSE. Rio operates across commodities such as Aluminium, Copper & Diamonds, Energy & Minerals, and Iron Ore. The stock prices of the big 3 miners were being swayed by the sky high iron ore pieces in recent weeks. It’s not just iron ore though, commodity prices across all the commodities that RIO mines have been soaring and the inflation data continues to push it higher. These prices mean that being a producer is the place you want to be in as the cost can be passed over to the customers.
In RIO’s H1FY21 financial performance, RIO generated $13.7 billion net cash generated from operating activities was 143% higher than 2020 first half, mainly due to higher pricing for iron ore, aluminium and copper. $10.2 billion free cash flow reflected the stronger operating cash flows partially offset by a 24% rise in capital expenditure1 to $3.3 billion, driven by an increase in replacement and development capital as RIO ramped up their projects. $21.0 billion underlying EBITDA was 118% higher than 2020 first half, with an underlying EBITDA margin of 61%.
Cash returns of $9.1 billion was announced by RIO, comprising interim ordinary dividend of $6.1 billion, equivalent to 376 US cents per share, and special dividend of $3.0 billion, equivalent to 185 US cents per share. Interim pay-out ratio represents 75% of first half underlying earnings. The materials industry continues to perform well given the economic recovery of several countries now on track. RIO shares trade at $75.28 a share with a dividend yield of 9.14%, making RIO one of the best mining stocks on the ASX.
Orocobre is one of the biggest lithium stocks on the ASX with a market cap of $2.2 billion. ORE shares have performed exceptionally well since a year, returning 166% in the past year and 48% this year. Orocobre recently announced their decision to merge with Galaxy Resources (ASX: GXY) – making the new entity the 5th biggest lithium stock in the world. In this ‘merger of equals’, Orocobre will acquire 100% of Galaxy and create a portfolio of assets that are well diversified geographically and by product. The synergies from the acquisition have the potential to generate significant shareholder value for lithium investors. Lithium is an extremely hot sector right now with plenty of tailwinds. Given the importance of the commodity, it doesn’t seem like it would slow down either. The strength of the new entity from the Orocobre and Galaxy will make this arguably the best lithium stock on the ASX.
ORE announced their FY21 earnings on the 25th of August which resulted in a negative market reaction on ORE shares. However, within a week, ORE shares are now back trading close to all time highs. Much of the strong momentum for ORE shares is on the back of Lithium prices that are improving, reflecting strong end market and customer demand. ORE shares closed at $9.79 a share today, taking the 2021 gains of ORE to 119%. ORE is definitely one of the best mining stocks that the ASX has to offer.
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