Rio Tinto and BHP stock: Can mining giants unearth profit growth?

Key Points

• A report from RBC Capital forecasts growth in 2024 for mining companies, with squeezed inventories and reduced inflationary cost pressures driving increases.
• BHP CEO Mike Henry recently said global markets for copper, iron ore and other commodities remain robust.
• Rio Tinto's CEO said the company has "one of the most exciting exploration pipelines in years."

The mining industry as a whole didn’t get the memo that the early 2024 selloff has been toned down, despite analysts seeing hope on the horizon. 

Mining giants Rio Tinto Group NYSE: RIO and BHP Group Limited NYSE: BHP are leading the industry lower, despite forecasts that commodity prices will rise, boosting revenue and presumably, share price.

In a recent research report, RBC Capital Markets analysts strong balance sheets, increasing earnings momentum, squeezed inventories and reduced inflationary cost pressures should combine to help miners this year.

But investors might have to be a little patient to see that turnaround.

The British-Australian Rio Tinto said on January 15 that fourth-quarter iron ore production declined year-over-year but rose sequentially. Aluminum production rose by 8% over the year-earlier quarter, and 2% sequentially. 

Copper production and iron ore pellets were also up year-over-year. 

Green energy driving copper usage

Iron ore is a top component of steel production, so the market watches that closely. 

Copper is expected to see more usage during the transition to green energy, although it’s been trading lower. 

Copper prices are down from their March 2022 high, and have been essentially rangebound since mid-2023. 

As demand rises, so are concerns about supply, giving analysts optimism that copper miners could see higher returns this year. 

Aluminum is also taking on increasing importance due to its light weight and increasing applications in the aerospace and automotive industries. 

Robust exploration pipeline

In the announcement about fourth-quarter production, Rio Tinto CEO Jakob Stausholm said, “We made real progress in shaping our portfolio for the future, entering the recycled aluminum market in North America and progressing the world-class Simandou iron ore project in Guinea.”

Stausholm also said the company has “one of the most exciting exploration pipelines in years, including our new copper joint venture with Codelco, launched in December.”

Much like the entertainment industry and the pharmaceutical industry, mining depends on a robust project pipeline to ensure a continuous flow of new exploration and development opportunities. 

A strong pipeline also mitigates the risks associated with depleting resources, and supports sustainable growth. All of that bolsters mining companies’ ability to remain competitive in their industry. 

“There is good demand for the materials we produce, and our purpose and long-term strategy make more sense than ever,” Stausholm added. “The work we are doing today is creating a stronger Rio Tinto for years to come, as we invest in profitable growth while continuing to deliver attractive shareholder returns.”

Rio Tinto resuming earnings growth

While that sounds like corporate speak, Stausholm was addressing the forecast return to earnings growth this year. 

Wall Street expects Rio Tinto to grow earnings by 10% this year, after an expected net income decline of 6% for 2023, which it reports on February 22. 

MarketBeat’s Rio Tinto analyst forecasts show a consensus view of “moderate buy” with a price target of $72, a 5% upside. 

Wall Street also sees earnings growth ahead for fellow large mining stocks BHP and  Vale S.A. NYSE: VALE. 

Iron ore, copper production up

On January 18, Australia-based BHP released its operational review for the six months ending on December 31.

Western Australia iron ore production was up 5% quarter-on-quarter, while first-half copper production rose 7%.

Copper production was also strong, while the company is taking steps to mitigate the impacts of the sharp fall in nickel prices in the past year.

Global markets for commodities remain strong

At the World Economic Forum annual meeting in Davos, Switzerland, BHP CEO Mike Henry said a Covid-related geopolitical dispute with China that reduced BHP’s coal sales to China has eased, but that BHP found other markets for its coal. Henry said that geopolitical and economic factors, including shipping rates, will have an influence over which geographic markets the company sells into. 

Henry also said the global markets for copper, iron ore and other commodities remain robust.

BHP’s analyst forecasts show a consensus view of “hold.” When the company next reports results, on February 20, that could be a catalyst for a move in either direction.