BHP Billiton Limited (ADR) (BHP), Vale SA (ADR) (VALE), Rio Tinto plc (ADR) (RIO): Which Global Mining Company Should You Buy?

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BHP Billiton Limited (ADR) (NYSE:BHP)BHP Billiton Limited (ADR) (NYSE:BHP), Vale SA (ADR) (NYSE:VALE) and Rio Tinto plc (ADR) (NYSE:RIO) being the leading mining companies, cater to most of the world’s demand for mineral ores. The industry is facing demand declines ever since the Chinese economy has slowed down. In the following article we will analyze how these companies are responding to the demand declines with BHP Billiton taking the lead and staying ahead of its rivals.

Recent Events

BHP Billiton, the world’s largest miner, is betting on strong returns from the copper business, even though the price of the metal is unlikely to rise because there is a strong demand for copper. Global demand for copper is likely to rise by 3 % annually. BHP Billiton Limited (ADR) (NYSE:BHP) is investing heavily to expand its operations regarding copper extraction; it has recently announced a $3.43 billion investment in a sea desalination plant at an Escondida mine it controls in Chile.

Moreover, the company is expanding rapidly in the Pilbara region to feed the Asian economies like China and various others with iron ore, which is used to make steel for industries ranging from auto manufacturing to construction. The company has hit a record high iron ore production, up by 17.7%, which is used to fuel these emerging markets. Lastly, BHP expects to expand the Jimblerbar mine by the end of this year. Development of this mine will increase BHP Billiton Limited (ADR) (NYSE:BHP)’s iron ore output capacity tremendously.

Vale suffered a 10.7% decrease in its revenue this quarter primarily due to the effects of lower volumes. It managed to surge its margins by 38% this quarter due to the cost reduction strategies the company implemented. However, on the down side, the Chinese economy is the largest consumer of Vale SA (ADR) (NYSE:VALE)’s output, which leaves the company vulnerable to demand declines in China. Due to it’s over-dependence on China, continuing efforts by Chinese authorities to shift its economic model toward consumption, away from investment, could deal a blow and undermine demand for metals.

Vale SA (ADR) (NYSE:VALE)’s iron ore output has remained flat largely as a result of delays in environmental licensing for projects, but recently the company has been granted a license to invest $20 billion in new iron ore production capacity at its Carajas mining complex. This will help Vale SA (ADR) (NYSE:VALE) surge its iron ore production, deeply benefiting the company.

Rio Tinto is struggling to pay off its $19 billion debt to get its balance sheet in a better shape. The company is struggling to sell its assets, since volatility in the commodity prices and higher debt costs cause buyers to pay up such huge amounts. The company is attempting to sell of more than a dozen of its smaller operations in a response to weaker commodity prices, sluggish growth in China and to pare $19 billion in debt.

In its struggle, the company has been able to secure a deal with China Molybdenum, Rio Tinto plc (ADR) (NYSE:RIO) has sold its controlling stake in Northparkes copper-gold mine for $820 million as part of efforts to reduce debt. Due to stringent cost reduction measure and efforts to sell off assets, the company is avoiding any investments to enhance its operations or explore new opportunities.

Tracking competition

Indicators BHP Billiton Vale Rio Tinto
Price/Earnings TTM

17.9 15.2

2.6 1.4 1.4
Revenue Growth

(3 Yr. average)

12.9 27.0 6.8
Net Income Growth

(3 Yr. average)

37.9 1.0
Return on Equity

14.7 8.1 -6.0
Dividend Yield

3.55% 2.69% 3.62%
Current Price

$63.84 $14.18 $45.15

Data from Morningstar on July 29, 2013

BHP Billiton Limited (ADR) (NYSE:BHP) has been able to provide decent dividends increasing at a modest rate, which depicts stability in its operations. Moreover, BHP has reported a very high growth in its net income as compared to its peers, primarily due to strong returns from its copper business.

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