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Is It Time To Buy Northern Star, Rio Tinto & BHP Shares?

If I were considering investing in ASX resources shares, I’d start by researching BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Northern Star Resources Ltd (ASX: NST).

The Case For ASX Resources Shares

While it can be great to invest in resources stocks during the ‘boom time’, investing directly in shares of mining and resources companies can be extremely risky because the failure rate is enormously high, it’s costly to build mines and even after a mine has reached the production phase there are no guarantees the company will be able to sell its product/commodity for a reasonable price.

Ultimately, no single mining company has complete control over the global market for their products. I say this because I choose not to invest in mining shares for this reason and to make sure you tread lightly and think about the risks before buying shares in any of the three companies I’ve listed below.

1. BHP

BHP is a global resources company, extracting and processing minerals (like iron ore and copper), oil and gas.

I especially like BHP shares because the company is diversified and its competitive advantage is what I consider to be ‘efficient scale’. Meaning, BHP should be able to weather the storms of low commodity prices for longer than most companies thanks to its mining efficiency and diversification. And when a commodity price rout inevitably comes BHP could use its financial firepower to buy other mines or projects from smaller players (which are struggling to stay afloat) to expand its resource base. Right now, BHP shares trade at a respectable fully franked dividend yield of 5% fully franked.

2. Rio Tinto

Rio Tinto’s origins date back more than 145 years. As of 2019, it is one of world’s largest aluminium and iron ore producers, with much of its sales revenue coming from its operates in Western Australia. It also owns, fully or partly, mining projects for copper, diamonds, uranium and other minerals. Rio is one of the market leaders for each of its core commodity groups, including in the production of iron ore, an important steel-making ingredient witnessing huge demand from Asian markets in particular.

Based on its last dividend payment Rio Tinto shares trade at a fully franked dividend yield north of 5%.

3. NST

Northern Star Resources is one of Australia’s largest gold miners, with operations in Australia and North America. NST claims to have tier-1 world-class mining projects in very promising regions thanks to their low sovereign risk.

What I like about Northern Star is its proven management team, high-grade reserves (which widen profit margins on sold produced), strong balance sheet (~$200m of net cash at June 30, 2019) and acquisitive strategy. Unlike other industries, oftentimes it makes sense for mining businesses to acquire smaller competitors and exploration tenements because it means they don’t need to do all of the costly exploration or development themselves.

NSTshares trade at a historical dividend yield of 1.3% but make up for what it lacks in dividend yield with long-term growth potential.

Time To Buy?

As noted above I don’t invest in resources shares. However, if I did invest I’d prefer to stay with proven companies which have years of high-grade resources, low costs and aligned management teams. If you forced me to pick one of the shares above I’d choose Northern Star for growth.

If I were making an ASX share investment purely for fully franked dividend income I’d go with the ETF in the free report below.

Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.

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Low fees? Check.

Long-term growth potential? Check.

Regular cash returns? Check!

This ETF makes investing in ETFs "Super-Easy".

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The information on this website is general financial advice only. That means, the advice does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. Please read our Terms & Conditions and Financial Services Guide before using this website.

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