Should You Buy Anglo American plc Instead Of Rio Tinto plc Or BHP Billiton plc?

opencast.miningShares in Anglo American (LSE: AAL) have made a strong start to the year. Indeed, the South Africa-focused mining company is up 15% year-to-date, while the FTSE 100 has managed to post gains of only 1%. Meanwhile, two of Anglo American’s sector peers, Rio Tinto (LSE: RIO) (NYSE: RIO.US) and BHP Billiton (LSE: BLT) (NYSE: BBL.US) are down 3% and up 6% respectively over the same time period. Does their underperformance make them more attractive than Anglo American right now?


Clearly, the mining sector is a volatile sector, with profitability highly correlated to metal prices and their demand. That’s why many investors seek out the diversity and relative stability of BHP Billiton, with the company being the most diversified miner in the world. However, Anglo American compares relatively well on the diversification front. It produces a whole range of metals and natural resources, including gold, platinum, diamonds and coal across Europe, the Americas, South Africa and Australia. Indeed, the least diversified of the three stocks is Rio Tinto, which relied on iron ore for around 90% of its 2013 earnings.

Track Record And Future Potential

However, the last few years have been tough for Anglo American. It has recorded two years of falling per share profits and is due to record a disappointing 2014, too. Of course, this has been the same for most mining companies, as metal prices have come under pressure as a result of weakening demand.

Next year, though, is set to see Anglo American return to bottom-line growth, with earnings per share (EPS) forecast to increase by 24%. This compares favourably to Rio Tinto and BHP Billiton, which are forecast to see changes in EPS of 11% and minus 2% respectively.


As a sector, mining offers attractive value at present. Certainly, demand has not returned to its pre-credit crunch levels, but macroeconomic data from China and other emerging economies is beginning to show strength, which bodes well for mining companies.

In terms of valuations, Rio Tinto looks like a steal at current price levels, since it trades on a price to earnings (P/E) ratio of just 10.6 and yields an impressive 3.7%. This compares favourably to BHP Billiton, which has a P/E of 12.4 and also yields 3.7%. However, both companies appear to have the edge over Anglo American because it yields 3.4% and trades on a P/E of 14.4. Therefore, while Anglo American is attractive at current price levels, mining majors BHP Billiton and Rio Tinto continue to lock out the top two positions on the list of most attractive mining companies.

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Peter owns shares in BHP Billiton.