Rio Tinto Vs. BHP: Only One High-Yield Miner Is A Buy

Portfolio Comparison - Rio Tinto is diversified across four main sectors, with iron ore being its primary focus, supported by low cash costs and a fully integrated supply chain close to key Asian markets [3] - Rio Tinto has a substantial and growing copper portfolio, including a 30% stake in the world's largest copper mine, Escondida, which is positioned at the low end of the cost curve [3] - BHP has a competitively cost-positioned iron ore and copper production business but is a core producer of coal, which contrasts with the global shift towards electrification and cleaner energy [3] - BHP's portfolio includes a struggling nickel business and a recent entry into the potash segment, while Rio Tinto has a minerals portfolio with exposure to sands, borates, salts, and diamonds [3] - Rio Tinto is slightly favored due to its focus on materials likely to see increased demand in the future [3] Capital Allocation and Shareholder Returns - Rio Tinto emphasizes dividends and buybacks more than BHP, with a higher expected dividend yield of 6.3% compared to BHP's 5.1% over the next 12 months [4][5] - Rio Tinto has delivered a 2,010% total return since the mid-1990s, compared to BHP's 676.1%, and has significantly outperformed BHP over the past decade with a 166.2% total return versus BHP's 100.9% [7] - Rio Tinto has been more disciplined in share repurchases, reducing its shares outstanding by 30% compared to BHP [8][9] - Rio Tinto's management focuses on returning capital to shareholders, which has contributed to its long-term outperformance [10] Strategic Investments and Acquisitions - Rio Tinto is less likely to pursue aggressive acquisitions compared to BHP, which recently failed in an attempt to acquire Anglo American [11] - Rio Tinto has strategically invested in technologies, including a multi-year partnership with Palantir, aimed at improving efficiencies and long-term profitability [11] Valuation and Investment Recommendation - Rio Tinto trades at slightly lower earnings and EBITDA valuation multiples compared to BHP, making it more attractive from a valuation perspective [14] - Rio Tinto is rated as a buy due to its better total return track record, higher dividend yield, better-positioned portfolio, and greater capital discipline, while BHP is rated as a hold [14]