The Russia-Ukraine war has created major supply disruptions in the energy market. This, clubbed with higher demand from the recovery of the COVID-19 pandemic, has led to a huge imbalance. Amid this imbalance, oil prices touched new highs in March 2022. However, since June 2022, prices have fallen primarily due to the reduced oil demand that resulted from the slowdown in economic activity.
At the time of writing, brent crude oil was trading at $79.51 per barrel and WTI oil was at $74.71 per barrel. Despite the recent dip, oil prices are forecasted to reach around $92 per barrel in 2023 and $80 per barrel in 2024.
The hike in oil prices has sent the stocks of mining companies much higher. The share prices of three Australian mining companies, Rio Tinto Limited (AU:RIO), BHP Group Ltd. (AU:BHP), and Fortescue Metals Group Ltd. (AU: FMG) have all jumped in the last year.
We have used the TipRanks Stock Comparison tool for the Australian market to shortlist these companies from this sector. This tool can guide investors in comparing different stocks based on criteria such as dividend yield, stock price movement, market cap, Smart Score, analyst ratings, and more.
Let’s see these stocks in detail.
Rio Tinto Limited
Rio Tinto is a global mining company engaged in the mining of mineral resources such as iron ore, aluminum, copper, diamonds, and coal.
Amid the energy price volatility, the stock has generated a huge return of 45.7% in the last three years, with a 25% growth in the last three months alone. Iron ore contributes the most to the company’s earnings, and the share prices move in sync with the commodity prices.
The company is already on track to shift its focus away from iron ore and onto some new metals, such as nickel and lithium. Rio’s base of critical mineral assets has been impressive so far, spread over Canada, Argentina, and Mongolia. As Rio is the largest exporter of iron ore to China, this will surely allow the company to build an alternative supply chain.
Is Rio Tinto Stock a Buy or Sell?
According to TipRanks, Rio Tinto stock has a Hold rating based on 11 analysts’ recommendations. It includes three Buy, six Hold, and two Sell ratings.
The RIO target price is AU$117.24, with a high forecast of AU$221.88 and a low forecast of AU$91. The average price shows a change of 2.02% from the current price level.
BHP Group Ltd.
BHP is another mining giant from Australia, producing iron ore, copper, nickel, and coal.
BHP’s stock has been trading up by 65% in the last three years. YTD, the stock has increased by almost 35%.
With the uncertain economic environment and volatility in iron ore prices, BHP is also increasing its exposure to future commodities to further push its top-line growth. The company is currently in the process of acquiring the copper mining company for A$9.6 billion in a revised bid. With this move, the company will gain more exposure for its copper assets, which is an important element in the current energy transition.
Is BHP a Good Stock to Buy?
According to TipRanks’ analyst consensus, BHP stock has a Hold rating, based on four Buy, nine Hold, and one Sell recommendations.
The BHP target price is AU$43.12, which is 6.1% lower than the current price level.
Fortescue Metals Group Ltd.
Fortescue Metals is a leading company in iron ore production, based in Australia.
Among its peers, Fortescue Metals’ stock has given the highest returns of 184% to its shareholders in the last three years. However, the share price remains highly volatile this year.
Fortescue Metals was more affected by iron ore prices than its competitors, owing to higher costs and lower metal quality. This was quite evident in its full-year results for 2022, where its profits were down by almost 40% year-on-year at AU$9 billion.
Similar to its rivals, the company is transforming its business through Fortescue Future Industries with the aim of becoming a green energy company. The company wants to diversify its operations with green hydrogen and green ammonia supplies. The company announced a $6.2 billion investment in decarbonization technology to reduce carbon emissions. This will also result in annual savings of $818 million in operating costs.
Is Fortescue Metals a Good Investment?
The analysts are bearish on the stock, and it has nine Sell recommendations. According to TipRanks, overall, Fortescue Metals has a Moderate Sell rating.
The FMG average target price is AU$15.92 which is 24.2% lower than the current price level.
Conclusion
These companies are known for their portfolio of well-managed assets. With the increasing risks in the industry, these players are constantly upgrading their operations and moving towards cleaner and newer metals.
While investors are enjoying this ride, they remain worried about how long this bull run will continue for these stocks. The impending recession does pose a threat to the global demand for oil and gas. But the relaxation of China’s zero COVID policy could further boost the demand for iron ore and other metals.
