I’m currently taking a look around the FTSE 100 sectors to find the best of each bunch, and today it’s time for a look at the miners.
We have a few to choose from, so let’s start with a quick look at the competition:
| Company | Price | Change | EPS growth | P/E | Divi | Cover |
|---|---|---|---|---|---|---|
| Anglo American |
1,518p | -3% | -9% | 13.6 | 3.4% | 2.20x |
| Antofagasta |
835p | -10% | +26% | 16.7 | 2.1% | 2.92x |
| BHP Billiton |
1,907p | +5% | +22% | 12.0 | 3.8% | 2.21x |
| Fresnillo | 906.5p | -15% | -8% | 44.5 | 1.3% | 1.77x |
| Glencore Xstrata |
313.6p | -2% | +11% | 14.5 | 3.3% | 2.15x |
| Randgold Resources | 4,748p | +7% | +16% | 23.1 | 0.7% | 6.12x |
| Rio Tinto | 3,332p | +12% | 0% | 10.3 | 3.7% | 2.69x |
*Price change is over the past 12 months, EPS growth, P/E and dividend yields are forecasts.
Shiny things
Straight away I can cast out Fresnillo and Randgold Resources, simply because they’re engaged in the pursuit of precious metals. If you’re interested in that kind of thing and can make money, great — but for most of us, chasing the prices of gold and silver is a mug’s game.
Anglo American (LSE: AAL) has been struggling, with earnings per share falling for a couple of years — and there’s a further fall forecast for the year to December 2014, of 9%. The company does produce very good stuff in the form of iron, manganese, copper, etc — though it is also in the diamonds and precious metals business to the tune of around 20% of profits. I reckon Anglo American is a bit too highly priced considering the slow speed of its recovery, so it’s not my pick.
Focus on mining
Glencore Xstrata (LSE: GLEN) is another I’m passing on, mainly because it’s more diversified into general commodities production and processing — energy products, agricultural products, processing and refining of resources all fall under its umbrella. And I think the best opportunities right now are in pure plays on mining itself.
That leaves us with copper miner Antofagasta (LSE: ANTO), and diversified miners BHP Billiton (LSE: BLT) and Rio Tinto (LSE: RIO).
And I can refine that further by eliminating Antofagasta — I reckon it’s a solid investment, and it has strong earnings growth forecasts. But it’s tied to the global price of that one specific metal, copper, and I don’t think the current valuation is low enough to compensate for that extra risk.
Diversity in metals
BHP and Rio both unearth a similar range of materials, with iron ore the biggest single product for each. Aluminium comes next for Rio, while BHP sees petroleum and potash as important products. And both contribute to the world’s copper supplies.
BHP has better growth forecast for this year, but at a slightly higher P/E valuation, but there’s no growth forecast for 2015. It’s the other way round with Rio — no growth expected this year, but 13% next. Both companies carry similar levels of debt, so there’s nothing to choose on that basis, and they’re similar sizes in market cap.
Rio edges it
In the end, I see slightly better valuation in Rio, with a forward P/E of under 11. And with 80% of its turnover coming purely from metals, I see it as the better bet for continued Chinese growth. It’s close, but as I also decided when I added it to the Beginners’ Portfolio, Rio Tinto is the miner for me.
