MARKET COMMENT
Stock Market Goldmines

By Maynard Paton (TMFMayn)
August 6, 2002

Amongst this year's stock market carnage has been the mining sector. The FTSE All-Share mining index has fallen 28% this year and some of the industry' leading shares are beginning to look interesting.

Just like its oil cousin, the mining sector has into two distinct camps: a handful of large multinationals and a bevy of smaller, speculative outfits. Foolish investors should concentrate on the former group. Here are the big six:

Company          Share      Market     P/E        Dividend
                 price      value                  yield
                  (p)        (£m)                   (%)

Rio Tinto         981       10,451     13.4         4.2
Anglo American    698       10,249      8.4         5.0
BHP Billiton      260        6,405     11.5         3.2
Xstrata           571        1,441      8.7         4.5
Lonmin            710        1,002      8.7         6.2
Antofagasta       498          981     18.8         4.2

A miner's profits are generally determined by the market price of the commodity it digs up. For instance, Lonmin (LSE: LMI) is a pure play on platinum while Antofagasta (LSE: ANTO) specialises on copper extraction. Although the other four firms dig for a wider spread of metals, their profits are still volatile. Over the past five years, industry giant Rio Tinto (LSE: RIO) has seen earnings per share rise 6%, fall 8%, rise 21%, rise 25% and then fall 16%.

Rather than attempt to forecast a miner's profits by guessing the future price of various commodities, long-term investors should turn their attention to the more dependable dividend. Although each of the six miners above has witnessed at least one annual profit decline since 1996, not one has reduced its dividend in a down year.

All things considered, probably the best of the bunch at the moment is Anglo American (LSE: AAL), with perhaps Lonmin as a side-bet. Both shares have slumped recently after the South African government drafted its mining industry Charter. Anglo responded by stating the Charter was "unacceptable". According to some observers, the proposals will effectively lead to the part-nationalisation of the South African mining industry.

Although there's plenty of industry gloom about, Anglo's shares are currently yielding 5%, a level seen only during the post-September 11th panic and the old economy trough of March 2000. With the dividend more than twice covered, Anglo's shares at present levels could prove to be a stock market goldmine.

More: TMFPyad On Miners