Speculation that Rio Tinto Limited (ASX: RIO) may be bidding on a stake in Teck Resources' Quebrada Blanca Chilean mine expansion could raise some eyebrows as cash from our largest iron ore miner has only been going one way – back into the pockets of shareholders.
If anything, Rio Tinto and its stablemate BHP Billiton Limited (ASX: BHP) have been divesting assets to hoard cash while lifting productivity at existing mines in recent years – a strategy that has served them well as Rio Tinto's share price and BHP's share prices have outperformed the S&P/ASX 200 (ASX: XJO).
Does the bid in Teck's copper mine (as reported by Reuters) mark the start in a change of strategy?
It's an important question for investors to contemplate for two key reasons, particularly as Rio Tinto completed its $2.9 billion off-market share buyback and commits to spending up to US$1.1 billion more in capital returns.
So far, the mining giants have left mergers and acquisitions (M&As) to their smaller rivals such as Oz Minerals Limited (ASX: OZL) and Fortescue Metals Group Limited (ASX: FMG), although the latter lost the takeover battle for Atlas Iron.
The first reason why shareholders should be paying close attention is because the cashed-up mining titans may ease up on capital returns in the future if they start to prioritise M&A as a medium-term growth strategy.
That could trigger more volatility in BHP's and Rio Tinto's share prices as many investors who've bought the stocks have done it for future capital returns.
The other reason is because it could shine the light on the commodity that is best placed to outperform in this uncertain global macro-economic environment.
It's quite telling that Rio Tinto is looking for a minority stake in a copper project as it is in the process of selling its stake in the Grasberg copper mine in Indonesia.
Some would argue that Rio Tinto is bullish on copper but wants to swap low quality assets for higher quality ones.
Regardless, copper bulls will be pleased with the signal Rio Tinto is sending as the commodity has been under intense pressure recently due to the unfolding trade war between China and the US.
But I think it's too early to think that Rio Tinto or BHP will deviate from their conservative strategy that focuses on lifting productivity and returning cash to shareholders.
After all, one transaction doesn't maketh a trend, although I have no doubt that we will see an increase in both miners' willingness to stick their necks out on the M&A front in 2019.
