Should you buy these 5 Mining Stocks given the iron ore price movements?

BHP Billiton Limited

BHP Details

Plans to exit US shale business: BHP Billiton Limited (ASX: BHP) reported a strong underlying EBITDA rise of 64% year on year (yoy) to US$ 20,296 million in fiscal year of 2017 while underlying attributable profit surged over 454% yoy to US$ 6,732 million. The group has now concluded that their onshore US assets are non-core and is actively seeking options to exit these assets for value. Meanwhile, BHP would finish well trials, acreage swaps and assess midstream solutions to enhance the value, profitability and marketability of the acreage. BHP intends to control their capital and exploration expenditure to below US$8 billion per annum for the 2019 and 2020 financial years. BHP is paying a final dividend of 43 US cents per share. Improvement in iron ore price has boosted the performance in FY17 while there has been a sector uplift. 

Underlying EBITDA performance (Source: Company reports)
 
The group approved a global multi-currency bond repurchase plan with one targeting certain bonds issued under their U.S. debt capital markets program and another targeting certain bonds issued under the Euro Medium-Term Notes Program. BHP generated over 22.7% in the last one year (as of August 22, 2017) while we maintain a “Buy” recommendation on the stock at the current price of $ 26.04


BHP Daily Chart (Source: Thomson Reuters) 

Rio Tinto Limited

RIO Details

Focusing on cost control: Rio Tinto Limited (ASX: RIO) met their $2 billion cash cost reduction target six months early. The group generated an operating cash flow of $6.3 billion, while EBITDA rose 68% yoy to $9.0 billion in first half 2017. RIO delivered underlying earnings increase of 152% yoy to $3.9 billion while net earnings rose 93% yoy to $3.3 billion.
 

RIO portfolio (Source: Company reports)
 
The group has strengthened their portfolio with all main growth projects on track and a $2.7 billion disposal announced in 2017 first half. RIO also increased their share buy-back of $1.0 billion by the end of 2017. Rio’s iron ore business contributed to 80% of the group’s underlying earnings in the six months to June, and with current commodity price movement there could be an increase in the dividend. RIO stock has a decent dividend yield and is trading at a reasonable level; while we maintain a “Buy” on the stock at the current price of $ 64.97


RIO Daily Chart (Source: Thomson Reuters) 

Fortescue Metals Group Limited

FMG Details

Delivered a decent performance: Fortescue Metals Group Limited (ASX: FMG) delivered a decent revenue rise of 19% yoy to US$ 8,447 million in fiscal year of 2017 while net profit after income tax surged 112% yoy to US$ 2,093 million. But the group controlled their C1 operating costs to average US$12.82/wmt which is a 17% fall against the same period last year. Total delivered cost to customers, including C1, shipping, royalty and administration costs, fell 4% yoy to US$22/wmt, against US$23/wmt in FY16. They reported a final fully franked dividend of A$0.25 per share, leading to a total of A$0.45 per share of dividends. Overall, the result was driven by higher average iron ore prices. The group now expects price realisations of 75-80% on Platts 62 CFR Index to either continue or be lower than low end guidance for first half of FY18. On the other hand, FMG stock surged over 18.8% in the last four weeks (as of August 22, 2017) and we give an “Expensive” recommendation at the current price of $ 5.89


FMG Daily Chart (Source: Thomson Reuters)

BC Iron Limited

BCI Details

Decent result but trading on volatility: BC Iron Limited (ASX: BCI) reported a revenue from continuing operations of $64 million in fiscal year of 2017, up from $40.4 million in the prior corresponding period. They reported a profit after tax of $5.7 million during fiscal year of 2017 from a loss of $82.7 million in pcp. Strong operational performance of Iron Valley, coupled with decrease in Nullagine costs drove their performance. Iron Valley, (operated by Mineral Resources) reported a full-year contribution to EBITDA during the period while 8.0 million wet metric tonnes was shipped, which delivered a revenue for BCI of $63.5 million and EBITDA of $18.3 million. Cash balance enhanced to $36.4 million. BCI stock rallied over 28.6% in the last three months (as of August 22, 2017) but fell about 5.5% on August 23, 2017 at the back of volatility and unusual trading activity (which may be relating to conversion of unlisted performance rights). Further, iron ore futures in China have been reported to be down more than 5% impacting the recent rally. Given the entire gamut, we put a “Speculative Buy” recommendation on the stock at the current price of $ 0.17


BCI Daily Chart (Source: Thomson Reuters)

Atlas Iron Limited

AGO Details

Concerns over iron ore prices: Atlas Iron Limited (ASX: AGO) has been under pressure at the back of volatility in the iron ore futures market. While high grade iron ore is in demand, issues are cropping up for medium to low-grade iron ore. AGO has already cautioned investors on the ongoing volatility in the iron ore market. On the other hand, the group shipped 3.1m wmt in June quarter and is aiming for 9-10 wmt production in fiscal year of 2018. The group reported a cash of $81 million as of June 2017 with a further $20 million of reserve account. AGO stock lost over 55.8% in the last six months (as of August 22, 2017) while we maintain an “Expensive” recommendation on the stock at the current price of $ 0.019


AGO Daily Chart (Source: Thomson Reuters)

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