The last few years have been a wake-up call for Rio Tinto (LSE: RIO), Vedanta Resources (LSE: VED), KAZ Minerals (LSE: KAZ) and Glencore (LSE: GLEN).
After spending heavily to develop high-cost mines during the 2009 — 2012 commodity boom, these miners found themselves scrambling to cut costs as the prices of key commodities slumped during 2013.
However, for the most part, Rio, Vedanta, KAZ and Glencore have now stabilised their operations. High-cost projects have been shelved, unnecessary costs have been cut, and strategies have been rethought.
So, is now the time to buy these miners as they start to recover from past mistakes?
Cash cow
As the world’s largest iron ore miner, Rio has fared better than most as the price of iron ore has collapsed.
Indeed, City analysts believe that Rio’s average iron ore cash cost of production is around $30 per tonne, which gives the company plenty of room for manoeuvre.
What’s more, Rio slashed capital spending by $4.8bn billion during 2014 to save cash. Net debt dropped from $18.1bn to $12.5bn during the year. Further cash cost improvements of $750m are expected to be realised in 2015.
These efforts are designed to offset falling commodity prices and safeguard Rio’s dividend yield.
So, while growth remains elusive, Rio’s investors are still set to receive a dividend yield of 5.2% this year. The company trades at a forward P/E of 16.4.
Consolidation
Vedanta Resources is currently in the process of trying to consolidate some of its sprawling subsidiaries. With more than ten unlisted subsidiaries, Vedanta is a complicated business.
Still, plans have recently been unveiled to merge two of the group’s India-listed subsidiaries — Vedanta Ltd and Cairn India, which would simplify the overall group structure and unlock cash. Cairn India has $3bn in net cash on its balance sheet.
Consolidation could be the catalyst that kick-starts Vedanta’s growth.
Upcoming catalyst
An upcoming catalyst could also kick-start KAZ’s growth. Specifically, the company’s much anticipated Bozshakol copper project in Kazakhstan is due to start production during the first half of 2016.
If everything goes to plan, City analysts believe that KAZ could generate a pre-tax profit of £35m during 2016 — earnings per share of 11.7p. For the past two years, KAZ has reported a loss.
Still, even after returning to profit, based on current forecasts, KAZ looks expensive. The company is trading at a 2016 P/E of 28.5.
Cheap play
Mining giant and commodity trading house Glencore looks like a great growth play. This year the company’s earnings per share are forecast to expand by 13% to 15.2p. Next year, earnings per share are set to expand by a further 47% to 22.4p.
All in all, these figures suggest that Glencore is trading at a forward P/E of 19.5, and 2016 P/E of 12.6.
Moreover, the company currently supports a dividend yield of 4.1%, and the payout is set to increase at around 7% per annum for the next few years.
