Morgans analyst Adrian Prendergast suggests a shift in investment narratives for BHP and Rio Tinto. According to Prendergast, BHP is simplifying its operations, while Rio Tinto explores complex mergers and acquisitions as the commodity cycle potentially peaks. BHP recently abandoned its pursuit of Anglo American and reduced execution risk on Jansen Stage 1. The company has also guided group capital expenditure to decline towards US$10 billion by fiscal years 2028-2030, which is expected to improve free cash flow visibility.
Conversely, Rio Tinto faces ongoing complexity, including sustaining capital expenditure of approximately US$7 billion annually and potential merger discussions with Glencore. This creates both near-term overhang and long-term capital intensity concerns, according to Prendergast. Rio Tinto is a leading global mining group that focuses on finding, mining, and processing the Earth’s mineral resources. BHP Group is a global resources company, extracting and processing minerals, oil, and gas, with production and development across the world.
Prendergast maintains a Hold rating on BHP with a revised target price of $48.60, up from $47.90. He also holds a Trim rating on Rio Tinto with a target price of $142.00, increased from $140.00. Despite both companies’ shares trading near fair value, BHP’s cleaner capital management optionality and lower sustaining capital expenditure make it the preferred choice.
