Rio Tinto plc (ADR) (RIO), BHP Billiton Limited (ADR) (BHP), Freeport-McMoRan Copper & Gold Inc. (FCX): Are China and this Copper Mine a Match Made in Heaven?

Still, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) got 315 million pounds out of competitive South America, thanks in large part to a 51% stake in the El Abru mine in Chile. While it is a tremendous advantage to be in Chile to mine copper, it is an incredibly competitive area, and like BHP-owned Escondida, it is far from China, where the biggest customers of copper will be found for the foreseeable future.

Copper diversity helps Rio Tinto

Looking at these copper companies, it seems evident that Rio Tinto is the more diverse company in terms of holdings and competitive positioning. With Oyu Tolgoi now able to ship copper to China, it gives the Chinese the ability to buy more copper from their northern neighbor and wind down more expensive imports from Latin America. Of course, this doesn’t mean that Chile will become a wasteland. China gets over 74% of its copper from Latin America, and unlike manufactured goods, copper producing countries are a product of geography and geology as much as having a strong pro-mining business climate. However, as a percentage, China’s reliance on that region will decline as Asian mines churn out more copper.

Striking gold with copper

For long-term investment, Rio Tinto plc (ADR) (NYSE:RIO) and Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) would be the best options, but Rio Tinto has a better future in the works. While Freeport reported a stronger profit margin, Rio Tinto is so far the only private company with access to the growing Mongolian copper market and has started shipments to copper-hungry China.

Rio Tinto has the advantage in affordability and value, with a P/E of 8 and a P/B ratio of 1.8, reflecting current profitability problems and positive future outlook, compared to Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s P/E of 9 and P/B of 1.4. This makes Rio Tinto  a more affordable buy, as investors see value in their Mongolian investments paying off in the long run, as they should barring any unforeseen Chinese crash.

With China needing more and more copper, Rio Tinto will have an advantage in terms of being in Mongolia as well as controlled interests in Latin America, while Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) has Indonesia and Latin America. Given the trends, Rio Tinto will make a profit in the future if Oyu Tolgoi is the money maker everyone expects it to be, and investors will see the company in the black in the years to come, while Freeport’s growth will be more level.

The article Are China and this Copper Mine a Match Made in Heaven? originally appeared on and is written by John McKenna.

John McKenna has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.

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