The Too-Big Australian?

Since June 30 last year, BHP's share price has soared 54% as the demand for raw commodities from emerging markets grows. Over the past three months alone it has gone up 23%. But the Big Australian is still trading at a perfectly sensible price/earnings (P/E) multiple of 17.4 against a market average of about 15.
Moreover, in terms of its peers, BHP is smack in the middle of what is, admittedly, a wide spectrum of resource P/E ratios.

Rio Tinto is the most suitable company for comparison. In the nine months to March 31, Rio Tinto has recorded equally strong growth '”its shares have risen by $34 or more than 75%. During the March quarter, growth slowed to about 14%.

Based on past earnings, BHP has a P/E of 17.4 while Rio Tinto’s is 16.1. In contrast to almost all the resource stocks in the S&P ASX100, these multiples make BHP and Rio Tinto seem cheap.

Another ASX100 resource company with a rocketing share price is Oxiana. The speculative nature of its gold interests are reflected in its P/E. Although not in the same risk stratosphere as Lihir Gold, which has a P/E of more than 100, Oxiana is on remarkably even terms with Newcrest Mining; Oxiana’s P/E is 47 and Newcrest's is 50.

Other resource stocks worth examining are Alumina, Iluka and Zinifex. Alumina is a diversified company with interests in mining and refining yet investors are still prepared to pay a multiple of almost 30 times. Iluka has been losing money hand over fist lately so we can't compare it on an earnings basis. The dark horse of the chart is lead and zinc producer Zinifex. It charts like a dream and enjoys a lower multiple than either BHP or Rio Tinto.