BHP vs Rio: A Comparison of Two Mining Companies

This article compares BHP Billiton and Rio Tinto, two major mining companies, in terms of their organization, annual reports, performance, and more. It discusses the differences in their operations, strategic planning, dividend policies, and share price movements. The article concludes with a recommendation for investors considering these companies.

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BHP vs Rio
Introduction
Rio Tinto was formed in 1962 and is one of the largest mining companies in the globe. The
organization deals in copper, minerals, iron ore, diamond and aluminium as well. The
company tends to deliver its activities across the world and for the same purpose a total
workforce of not less than sixty thousand employees are engaged. Rio Tinto was established
as a single industry in the beginning but later it was altered into a dual listed company so as
to allow the same to grow and fulfil larger goals. In contrast to Rio, BHP Billiton ranks
number one in the department of dealing in petroleum, metal and mining. The management
and the board of the company are its core strength. BHP Billiton is a dual listed company. he
company aims at maximising the shareholders’ wealth and strength by means of add on in its
natural resources, marketing and discovery (Rio Tinto., 2017).
Organization difference between BHP Billiton and Rio Tinto
In Australia it is noticed that the organizations whose operations are extended around the
world allows the growth of its stakes if the same is taxed by the government. In this context it
is not wrong to say that BHP extends its operations globally by means of its activities like
mining, extracting, processing, drilling, exploring, shipping and marketing as well. The taxes
are paid from the revenues that are earned by the company from its business activities in
Australia. The company is seemed to have performed fairly since 15 years as what is
reflected in its statements and records that are issued publicly and owing to this transparency
and authenticity it is considered as one of the most trustworthy company by the users
(Vaitilingam, 2014).
The best part about Rio Tinto is the way the strategies are designed so as to overcome the
competition in the market and accomplish its organizational goals. The management of the
company has designed and applied strategies in a manner that makes it easier for the
company to operate smoothly in its industry despite of immense competition and fluctuations.
The company gives significance to four Ps which is its performance, people, portfolio and
partners so as to attain its goals of maximising benefits. Rio is seen to operate in a manner
with less or no damage caused to the environment (Rio Tinto., 2017).
Significance of annual reports of both the companies for the shareholders
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BHP vs Rio
The significance of annual reports is immense and the same holds true for BHP Billiton and
Rio Tinto. It offers thorough information of a company’s performance in a particular
financial year. The Annual reports of Billiton and Rio Tinto consist of the profit and loss
(income) statement, balance sheet and a cash flow statement. Other notes are attached with
the annual reports so as to explain how a company allocates its pension plan contributions,
accounting methods used by the same to report and record its transactions, depreciation of its
assets, stock option compensation, etc (Laux, 2014). Further, the Annual reports have
highlighted the past performances of the company in the years prior to the current financial
year and its goals. Apart from the financial performance of the company the report also sheds
light on the market share gains, development in research work, increase in sales, installation
of a new machinery that has boosted its productivity and hence profitability, honours given to
the company or its employees, etc in the achievements section. This allows the investors to
take pride about their involvement and association in such a company (Williams, 2012).
Goal, challenges and plans
In both the annual report that is BHP and Rio, performance is seen as the organization
achievement that is linked with the goals. The annual report clearly emphasizes regarding the
outcomes that is attained or accomplished through the contribution of individuals or teams
(Peirson et. al, 2015). Herein the term performance exceeds both economic, as well as
behavioural outcomes. In the annual report, the managers even emphasize the challenges
regarding the miners. Rio’s top officials warned that the scenario for the miners will remain
volatile and challenging however the company can thrive under such scenario by availing the
opportunity (Rio Tinto, 2017). The result will depend on the actions taken by Rio. In regard
to BHP, the top managers insist on pushing the boundaries that is presented by the
conventional mining process. In short, the company aims to integrate the workforce, data and
systems. The major emphasis of BHP is to accelerate in terms of innovation so that the work
if safer, productive and efficient (BHP, 2017).
Format of the annual report
The annual report of both the companies is structured in a manner that helps in summarizing
and shedding light on the yearly business activities. The contents are specific in nature and
the reporting objectives are clearly established (Leo, 2011). Further, the mission statement,
purpose and the company history provides a strong understanding wherein the prospects can
be traced.
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BHP vs Rio
The presence of income statement, balance sheet and cash flow with notes supporting them
helps to know about the performance. Moreover, it facilitates the preparation of ratios and
hence a forecast can be done with ease (Melville, 2013).
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BHP vs Rio
Performance report
Operating model
BHP focuses more on its core areas of operations which are Petroleum, Iron Ore, Coal and
Copper. It has maintained centers and the marketing system dedicated solely for the purpose
of maintaining its core areas of operations and both of these divisions have their own
administrative and executive departments and a CEO. The final meeting of the Group
Management Committee consists of all the senior members and has to be compulsorily
attended by the elected CEO of the respective departments.
All these centers have an independent status. Safety of the employees, maximum production
and costs savings are the protocols of all the centers of the company. As the functioning of
each and every centers is different from the another with respect to sales, corporate support
and marketing, therefore, these centers are allowed to derive benefits from the policies that
are set up in the organization to come over a difficult situation. The company even attached
charts, graphs and notes in its annual reports making it easier for users to evaluate its overall
performance. It allows the organization to operate in an organized manner which ultimately
adds to the goodwill of the same. As the organization is engaged in the business of natural
resources, the income from the same is not in its control for it is the international market that
decides the number of profits based on demand and supply rate (Rio Tinto., 2017).
In contrast to this, it can be said that BHP Billiton so as to set up its standards worldwide has
wisely selected Tier-1 projects. Mining operations can be successful if one perceives a long-
term view. Also, strategic developments and portfolios may not necessarily always contribute
to lower cost planning. Lower costs plan is mostly possible due to Tier-1 projects. It must be
considered that the production and the commencement of the business for such activities
range in between 10 to 20 years (BHP Billiton, 2017).
Appropriate strategic planning is very much essential for any company to achieve its goals.
The success of Rio is credited to its strategic planning which allows it to generate more and
more returns at a fixed cost. The company is able to derive maximum values from its assets
as a result of making huge investments in developing its technical space and commercial
capabilities. The company also aims at the preservation of natural resources and environment
welfare as a whole and therefore, has come up with formidable strategies so as to achieve the
same. Partnership with the external stakeholders and the investments from people are the
important deriving factors of the company’s operating model (Merchant, 2012).
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BHP vs Rio
Dividend policy
The dividend policy of the company can be ascertained after evaluating its financial
outcomes. Further, it also depends on the Board’s decision to keep a portion of profits for
diversification and expansion, and whether they intend to reflect an ethical financial outcome
(Leo, 2011). In addition, the reason why the company has established a dividend policy can
be attributed to the fact that it assists in analyzing the final dividend by assessing a balance
between the final and interim dividend (Kidwell, Kidwell, and Bates, 2012). Nevertheless,
the process can be carried out by balancing the investment of company with its cash return to
shareholders (Parrino et. al, 2012). The reason behind this is because the company is
responsible for enhancing the wealth of shareholders. Thus, it must encounter various tests
related to the market’s cyclical attributes and due to unspecific alterations in cash generation
and earnings (Northington, 2011). Overall, the company’s dividend policy assists in
additional dividend and the primary dividend that can be provided to the shareholders of the
company.
Share price movement
The prices of iron ore price recovered and are one of the top motivation for BHP. Further, the
news concerning the revival of a trillion dollar infrastructure led to the surge in the price of
copper. The announcement of the company in the link to the mines has played a pivotal part
that influences the prices of shares as a whole. Being positive news, it has lead to an
increment in the prices of stock. The decline in the expenses of production creates a way for
another major difference in the prices of stocks. Moreover, it crafted a positive path for the
organization so that profitable events can be carried and business diversification can be done
with ease.
When it comes to Rio Tinto, the company witnessed a stagnancy in the prices of iron ore after
a span of two years. The decline remained constant till 2015 and thereafter the same
enhanced with the due passage of time. The sale of the coal mine in South Africa and the
process of coal rationalization enhanced with the due passage of time. the major event noted
in the history of the company was that of Pilbara iron.
Recommendation
If BHP’s share prices witness a major increase, there will be lesser capital gain witnessed by
Rio Tinto. Further, both companies’ profitability has encountered immense variations during
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BHP vs Rio
these years and the primary cause behind this is that both companies are directly related to the
segment of mineral resources. Furthermore, the role played by external surrounding is also
significant in this regard as it influences the entire scenario of both companies in a heavier
manner. Nevertheless, the company’s ability to retain its situation in the long-run is easily
visible in the scenario of BHP. Moreover, this is because the company has significant and
powerful financial outcomes in comparison to the other company (Rio Tinto). However, both
the organizations have given due emphasis to debt financing instead of relying on equity type
of financing that is a negative indicator (Petty et. al, 2012). In relation to this, it must be noted
that depending on debt financing may cause huge financial losses to any company and since
both these companies have undertaken the same, investors may not find it comfortable to
invest their funds . In other words, investors may find it very risky to invest their resources
because these organizations may find it impossible to offer an adequate return to them as they
will be primarily liable to return the amount of interest on the loan they have borrowed.
Conclusion
From the above discussion on performance analysis it can be commented that if the share
prices of BHP Billiton increases, there will be a lesser capital gain to the investors of Rio
Tinto. The profit earning capacity of both the parties has undergone significant changes and
this is owing to the fact that they belong to the mining group. Furthermore, the external
environment has played a vital role. Overall, BHP has more resources and strong
fundamentals that has enabled it to ensure a dominant position in the market. Both BHP and
Rio Tinto are potent players in the market and investment in both companies attracts a high
level of risk because the debt pattern of both companies stands high. When it comes to the
investment point of view, it can be commented that the returns were not as expected. The
expectation from BHP Billiton is never fulfilled because the capital return is weak in nature.
Moreover, when it comes to capital expenditure BHP ranks higher as compared to Rio Tinto.
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BHP vs Rio
References
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https://www.bhp.com/media-and-insights/reports-and-presentations
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Merchant, K. A. (2012). Making Management Accounting Research More Useful. Pacific
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