Should You Turn Your Back On BHP Billiton plc And Rio Tinto plc For This Commodities Trader?

Is Glencore Xstrata PLC (LON:GLEN) a better buy than BHP Billiton plc (LON:BLT) or Rio Tinto plc (LON:RIO)?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Mining behemoths BHP Billiton (LSE: BLT) (NYSE: BBL.US) and Rio Tinto (LSE: RIO) (NYSE: RIO.US) have received a lot of positive press during the last few months as they work hard to drive profits higher and improve cash returns to investors.

However, Glencore Xstrata (LSE: GLEN) has been working harder, realising billions of dollars in operational synergies from the company’s merger with Xstrata last year and driving forward with many new growth projects. 

So, should you turn your back on BHP and Rio for Glencore?

rio tintoThe argument for Glencore

The biggest advantage Glencore has over its larger peers, is the company’s marketing business. Specifically, Glencore sources, ships and trades commodities of all types, all over the world. This marketing business is highly defensive and has helped cushion the downturn in Glencore’s traditional mining business.

Aside from Glencore’s marketing business, the company’s most attractive quality is its way of doing business. In particular, unlike Rio and BHP, Glencore does not embark on multi-billion dollar greenfield mine development projects. Instead, Glencore acquires struggling mining projects and turns them around, removing many of the risks and costs associated with traditional exploration and development assets.

Further, Glencore is engaged in the production of oil and gas and it has been reported that the company’s management is working on a $1bn collaboration deal with Russia’s Russneft, one of the Russia’s top 10 oil producers. 

The argument against

Still, while Glencore has many attractive qualities, the company is still fundamentally, a coal and copper miner. Unfortunately, as the prices of both coal and copper have pushed to new lows during past few months, Glencore is likely to suffer.

That being said, both BHP and Rio are still fundamentally iron ore miners, although BHP, like Glencore is getting into the oil and gas business. Specifically, BHP is currently investing billions into shale gas projects within the United States, reducing the company’s dependence on iron ore.

The other key advantage that Rio and BHP have over Glencore is a lower level of debt. For example, at the end of the 2013 financial year, BHP and Rio had a debt to equity level of 50% and 62% respectively, while Glencore’s debt to equity ratio was 110%. This high level of debt was is mostly attributable to the Xstrata acquisition. 

Summary

So, Glenore’s has many attractive qualities, the most important of which is the company’s marketing business. Nevertheless, Glencore’s high level of debt is worrying and this could hold the company back in the future.

All in all, Glencore is an attractive investment mostly due to the company’s diversification; however, BHP could be a better choice as the company’s drive into oil business will reduce its dependence on iron ore, and the company’s level of debt is lower than that of Glencore. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert does not own any share mentioned within this article.

More on Investing Articles

A pastel colored growing graph with rising rocket.
Investing Articles

Is this FTSE 100 passive income superstar also its best bargain right now?

This FTSE 100 gem still looks to me like one of the best bargains in the index. It appears very…

Read more »

Investing Articles

If I’d put £10,000 into Meta stock at the start of 2024, here’s what I’d have now

Our writer looks at the year-to-date performance of Meta stock and considers whether he'd consider buying this magnificent tech share.

Read more »

Hand arranging wood block stacking as step stair on paper pink background
Investing Articles

Investing £5 a day in this dividend giant can make me a £14,067 annual second income!

This FTSE 100 high-yield star can make me a major second income, supported by a strong business outlook and an…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Taylor Wimpey shares yield a fabulous 6.41%, but is the dividend safe?

Harvey Jones has enjoyed plenty of growth and income after buying Taylor Wimpey shares last year. But is today's high…

Read more »

Yellow number one sitting on blue background
Investing Articles

1 FTSE lithium stock I think could be ready to rocket

Jon Smith explains why the lithium price could be due a rally, and why shares of one related FTSE stock…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
US Stock

This growth stock that Warren Buffett owns just hit 52-week lows. Should I buy?

Jon Smith flags up a high-profile US stock that the great Warren Buffett bought back in 2020 but which has…

Read more »

White female supervisor working at an oil rig
Investing Articles

Could the UK general election be bad news for this FTSE 250 energy producer?

The country is due to vote in the general election on 4 July. Our writer looks at the possible implications…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should we buy cheap FTSE 100 shares now, before it’s too late?

The FTSE 100 is up 5% so far in 2024 and hit an all-time high in May. That means the…

Read more »