Rio Tinto Ltd (ASX: RIO) shares are currently my favourite pick compared to BHP Group Ltd (ASX: BHP) and Fortescue Ltd (ASX: FMG).
I’d call all three of them are ASX iron ore mining shares, but there are a few differences that set them apart, in my view.
There are a couple of reasons that make me like Rio Tinto, as well as a negative reason about each of BHP and Fortescue that has reduced my excitement about them.
Copper
Rio Tinto has been significantly increasing its exposure to copper in the last few years, which I think is really compelling. The world is becoming increasingly electrical, whether that’s electric cars, electricity grids, renewable energy generation, batteries and so on.
While iron is largely being purchased by China, I think copper usage will increase globally.
It’s also possible that it may become harder to find large, high-quality copper deposits for mines in the coming decades.
I think this commodity could eventually become the most important one for Rio Tinto shares.
Simandou
I also like that Rio Tinto is looking to diversify its sources of iron ore by being involved in a huge project called Simandou in Africa.
While Rio Tinto isn’t the only stakeholder in that project, I think it’s a good move, particularly if Simandou is able to produce strong mining margins. Australia may not necessarily have dominance over the iron ore market in future years.
I think Simandou could be one of the smartest moves by Rio Tinto’s iron ore division.
Samarco pain for BHP
Turning to why I’m less confident on BHP at the moment, the cost of the Samarco dam disaster continues to play out.
BHP recently gave an update to the market about legal action, negotiation and remediation that the miner is facing in Brazil (and elsewhere).
On top of what it has already paid, there will be US$18 billion in instalments over 20 years to public authorities, the relevant municipalities and indigenous peoples and traditional communities.
There are also additional performance obligations for an estimated financial value of approximately US$5.8 billion which will be carried about by Samarco to provide direct benefits to people, communities and environment affected by the dam failure.
This will reduce BHP’s profit for the coming years, which isn’t appealing as a prospective investor.
Green hydrogen momentum has stalled for Fortescue
A while ago, at a higher Fortescue price than today, I sold some of my shares. I still own a few, but not many.
Understandably, Fortescue has slowed down its efforts to deliver significant green energy production (such as green hydrogen and green ammonia). It certainly hasn’t abandoned those efforts, but it has been dispiriting to see that the company and the wider world aren’t as motivated to pursue green energy sooner.
Fortescue is still an excellent iron ore miner of course, but I like the copper exposure that Rio Tinto shares provide as well, whereas Fortescue is largely focused on just one commodity (for now).
However, I wouldn’t call any of them a screaming buy at the moment, following a rally for the iron ore price and the miners.
