Will Anglo American plc, Fresnillo plc & Lonmin plc rise or fall after an explosive start to 2016?

Are Anglo American plc (LON:AAL), Fresnillo plc (LON:FRES) and Lonmin plc (LON:LMI) still cheap enough to buy, or should investors take profits?

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Shares in South African-based miner Anglo American (LSE: AAL) have risen by 113% so far this year, making it the top performer in the FTSE 100 over the last six months. If you’ve ridden this spectacular rebound, you may be wondering whether it’s time to take some profits.

It’s worth noting that market conditions for several of Anglo’s key commodities seem to be improving. The price of platinum has risen by 13% so far this year, although at $1,000/oz. it’s still down by 16% since the start of 2015. Further gains could be possible.

Diamond prices also seem to be firming up, following Anglo’s decision to cut production. The company has also made good progress towards its $3-4bn divestment target for 2016, thanks to the recent $1.5bn sale of its niobium and phosphate mines.

Broker forecasts reflect this progress.  Consensus forecasts for 2016 earnings have risen by 142% to $0.41 per share since the start of the year!

Such fast-changing forecasts obviously aren’t the most reliable guides, but what I think is important is that earnings estimates are rising steadily. That’s a good trend for investors and supports my personal decision to hold on to my shares in Anglo American.

A volatile play?

South African platinum producer Lonmin (LSE: LMI) has risen by 125% so far this year. Although the rising price of platinum should help Lonmin’s recovery, there are several other factors to consider.

Investing in Lonmin also means exposure to the US Dollar/South African Rand exchange rate and the political risks of investing in South Africa. The group has had to work to improve relations with staff, at the same time as restructuring its finances and reducing headcount.

It’s a challenging mixture but I’ve been encouraged by progress so far. I was particularly pleased to learn that the firm generated positive cash flow during the second quarter.

Turning cash flow positive is an essential part of Lonmin’s plan to return to profitability. At the moment, consensus forecasts don’t show a profit for 2016 or 2017. However, a look at the breakdown of individual analysts’ estimates show that forecasts for next year range from a profit of $0.44 per share to a loss of $0.94 per share. Clearly there’s still a high degree of uncertainty.

I continue to hold Lonmin in my own portfolio, although I have reduced the size of my holding to lock in some of the big gains seen so far.

Is silver a better bet?

Silver miner Fresnillo (LSE: FRES) has risen by a more modest 48% so far this year. Yet the firm’s low costs and minimal debts mean that it has remained profitable through the gold and silver slump of the last few years.

The only problem is that this may already be reflected in Fresnillo’s share price. The stock currently trades on a 2017 forecast P/E of 32. This means that the forecast dividend yield for next year is just 1.4%.

In my view Fresnillo looks quite fully valued at the moment. It’s a quality company, but I’m tempted to wait for an opportunity to pick the shares up a little more cheaply.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head owns shares of Lonmin and Anglo American. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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