Why is the RIO share price leading the miners?

Posted: 29 July 2021 12:12 pm
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Shares in mining giants Rio Tinto and Fortescue Metals have climbed 30-60% in the last 12 months.

The affection that Australian investors have for mining shares has been on full display on Thursday. Shares in mining giant Rio Tinto (ASX: RIO) are topping the list of most traded stocks and are also up nearly 2.5% in early trading.

The positive vibes seem to have rubbed off on its iron ore peers, with both BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG) also up around 2% each.

What is driving the Rio Tinto stock price?

Rio Tinto reported its half year results late on Wednesday and the numbers beat even the strong expectations. The global miner posted its most profitable 6 months ever, with underlying earnings of US$12.2 billion thanks to a surge in iron ore prices.

But more importantly from an investors’ point of view, Rio Tinto will return a whopping US$9.1 billion (AUD$12.4 billion) to shareholders. At US$5.61 (AUD$7.63) a share, this is about 3 times what it paid out as its interim dividend last year.

More than 80% of that profit came out of the company’s Pilbara iron ore operations. The division also put the company in a net cash position by the end of June, likely for the first time in more than a decade.

The extraordinary result comes on the back of strong commodity prices as Chinese demand for the steel making ingredient hit record levels in the half year. Supply disruptions in Brazil have also helped keep iron ore prices consistently above US$200 a tonne for months now.

Sector gains

Rio Tinto is the first of Australia’s iron ore majors to report financial performance after the commodity’s golden run in the first half of 2021 and investors are treating its numbers as a preview of things to come from the sector this results season.

That sentiment was underlined as smaller rival Fortescue Metals released its June quarter production report on Thursday. The company’s June quarter shipments jumped to 49.3 million tonnes, up 17% from the previous quarter and put the miner near the top end of its annual export guidance of 180 million tonnes.

Fortescue Metals said it added US$3.3 billion to its cash balance in the June quarter alone, which should put it in a strong position to pay a bonanza dividend to shareholders. The company has a policy of paying out 50-80% of full-year net profits after tax as a dividend.

Shares in the 3 big miners have already surged 30-60% over the past 12 months. But the whopping payouts for investors this time around could mean the stock prices still have room to rise further.

Considering buying mining shares?

If you are keen to buy shares in BHP, Rio Tinto or Fortescue Metals, you can invest through an online share trading platform.

Keep in mind that not all platforms offer the same list of stocks. Some offer US stocks only, so make sure to select a platform that offers ASX-listed stocks.

Choose from the dozens available for Australian investors. Compare the features and fees from the plethora of trading platforms available.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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