Today’s results from Antofagasta (LSE: ANTO) were pretty upbeat. The Chilean-focused miner reported that copper production increased by 5.5% in the second quarter of the year and it maintained its production guidance for the rest of the year. Indeed, shares in the company have delivered strong gains over the last three months, being up 6% while the FTSE 100 is flat over the same time period.
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Compelling Reasons To Buy
With Rio Tinto and BHP Billiton, there are compelling reasons to buy. For example, BHP Billiton is the most diversified mining company in the world. Unlike Antofagasta — which is heavily focused on one region, Chile, and one commodity, copper — BHP Billiton operates mines across the globe and mines a wide variety of commodities. Therefore, it is less prone to disappointment when the price of one commodity falls. Antofagasta, on the other hand, will see its bottom line shrink rapidly if the price of copper falls, or if there are political challenges in Chile for instance.
Similarly, Rio Tinto is a compelling buy, but for a different reason. Like Antofagasta, it concentrates on one commodity: iron ore but unlike Antofagasta, it is trading at an extremely low valuation right now. For example, while Antofagasta currently has a price to earnings (P/E) ratio of 17.6, Rio Tinto’s P/E is just 11.5. That’s 35% lower than its sector peer and, in addition, Rio Tinto’s earnings forecast for next year is slightly ahead of Antofagasta at 9% versus 8%. Therefore, Rio Tinto appears to offer much better value than Antofagasta.
Of course, that’s not to say that Antofagasta isn’t worth buying. For investors who are looking beyond the ‘big two’ mining stocks, Antofagasta certainly has merit. The problem with it is that there is no compelling reason to buy it over Rio Tinto or BHP Billiton. It lacks the diversity of BHP Billiton and lacks the value of Rio Tinto.
With the mining sector continuing to benefit from a slight uptick in demand from emerging markets, though, all three companies could continue their recent performance that has seen them easily outperform the FTSE 100. As such, they could deliver strong gains going forward and leave their underperformance of the last few years well and truly behind.