Copper trades near historical highs at about USD 6.50 per pound, up 10% since our July 2026 update, given mine supply disruptions and tariff-related trade distortions. Zinc and aluminum prices are also stronger, though near-term iron ore futures are little changed.

We update our iron ore and base metals mining coverage fair values based on our latest commodity price assumptions.

Stronger copper and aluminum prices see Rio Tinto’s fair value estimate increased

Along with stronger aluminum and alumina prices, no-moat Rio Tinto’s (ASX: RIO) fair value is up 4%, to $130.

Rio Tinto is one of the world’s largest miners with operations in iron ore, aluminum (including bauxite and alumina), copper, lithium, and minerals (mineral sands, borates, salt, diamonds). Commodity demand is tied to global economic growth, China’s in particular. Rio Tinto benefited greatly from the China boom over the past two decades. The firm’s largest customer by far is China, with about 60% of sales in 2025. We think the outlook is for earnings to decline, with demand for many commodities likely to soften with the end of the China boom, particularly iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment.

It has a large portfolio of long-lived assets with low operating costs, meaning it is one of the few miners profitable through the commodity cycle. Most revenue comes from operations in the relatively safe havens of Australia and North America. The invested capital base was inflated by substantial procyclical investment at the height of the China boom, including overpaying for Alcan. The subsequent iron ore expansion was also made when unit capital costs were high. These factors diluted returns to the point where we struggle to justify a moat. As a commodity producer, it is a price-taker, with the lack of pricing power reflected in cyclical commodity prices.

The recent focus has been to run a strong balance sheet, tightly control investments, and return cash to shareholders. Its purchase of lithium miner Arcadium in 2025 was modest for a firm of its size. It is also focused on winning back the trust of investors, regulators, and indigenous people on whose lands many of its mines are located after the destruction of the Juukan Gorge caves in 2020. Major expansion projects are the Oyu Tolgoi underground mine, Simandou, and expansion of the Pilbara iron ore system’s capacity from 330 million metric tons to between 345 and 360 million metric tons. Those projects are expected to be completed in the next few years. Otherwise, the focus is on incremental expansions through productivity and debottlenecking initiatives. These will be small but capital-efficient and should modestly improve unit costs and returns.

Stronger copper price sees BHP’s fair value increased, but more than reflected in share price

The higher copper price drives the 4% rise in no-moat BHP’s (ASX: BHP) estimate to $48.

BHP is the world’s largest miner by market capitalization. Its main operations span iron ore and copper, with smaller contributions from metallurgical coal and thermal coal. It placed its nickel operations on care and maintenance due to low prices in 2024. BHP is also developing its Jansen potash project in Canada. It merged its oil and gas assets with Woodside Energy in June 2022, vesting the Woodside shares it received to BHP shareholders and exiting the sector. It purchased copper miner Oz Minerals in fiscal 2023 and half of the Vicuña copper joint venture in fiscal 2025.

Commodity demand is tied to global economic growth, particularly China’s. BHP benefited greatly from the China boom over the past two decades. China is BHP’s largest customer, accounting for roughly 60% of sales in fiscal 2026. But we think demand for many commodities is likely to soften as the China boom ends, particularly for iron ore, which has disproportionately benefited from the boom in infrastructure and real estate investment.

Its generally low-cost, high-quality assets mean BHP is likely to be one of the few miners that remain profitable through the commodity cycle. Much of its operations are close to key Asian markets, particularly the low-cost iron ore business, providing a modest freight cost advantage relative to some producers such as those in Africa and South America.

BHP correctly values a strong balance sheet to provide some stability through the inevitable cycles and derives some modest benefit from commodity and geographic diversification. Much of its revenue comes from assets in the relatively safe haven of Australia. The development of Jansen in Canada is BHP’s major expansion project, while it is also looking to expand copper production. It is also pursuing modest expansion of its Western Australia Iron Ore operations above 305 million metric tons (100% basis) per year.

The good times during the height of the China boom saw significant capital expenditure, notably on iron ore and onshore US shale gas and oil. Overinvestment in the boom diluted returns to the point where we struggle to justify a moat. As a commodity producer, it lacks pricing power and is a price taker.