How Much Further Do Rio Tinto plc, Anglo American plc And BHP Billiton plc Have To Fall?

It’s been a dreadful year for mining stocks, with slowing demand from China sending metals and minerals prices down and hurting their profits.

Rio Tinto (LSE: RIO) (NYSE: RIO.US) shares are down 19% since their February peak to 2,914p, giving shareholders a 6.4% loss over five years — and dividends have been a little below the FTSE 100 average, too.

Over at Anglo American (LSE: AAL) we’ve seen a 22% fall since late July to 1,264p. And there’s been a five-year fall of 50%, again with weak dividends. Anglo American’s poor five-year record is in large part down to its industrial relations disaster in South Africa, but it’s been hit by the same problems as the rest.

BHP Billiton (LSE: BLT) (NYSE: BBL.US) has dropped similarly in recent months, this time a 28% fall since July to 1,490p and down 20% over five years. At least this time dividends have come out above average.

The key thing these three have in common is iron. Anglo American earned 20% of its 2013 revenues from iron ore and manganese, with iron contributing 32% to BHP Billiton’s turnover and a massive 47% at Rio Tinto.

Over the past year, the price of ore has plunged by 41% to under $70 per tonne — and that’s led some smaller miners with higher production costs to mothball some of their operations.

A glut in the making?

At the same time, our three have been digging up more and more. We had record production from Rio Tinto in its third quarter, BHP Billiton achieved its 14th consecutive annual production record for Western Australian iron ore this year, and Anglo American saw production up 37% in its third quarter. There are increasing fears of a growing glut of iron ore — and if that happens, prices are surely going to be sent crashing further.

And though rising production and falling costs are helping with profits, it’s not enough to keep earnings per share growing. Analysts are forecasting falls for the current year of 13%, 19% and 18% for Rio, Anglo and BHP respectively.

I really don’t see any uptick in demand or rise in iron ore prices over the next six months at least, so with hard times ahead what should a poor investor do?

A good time to buy?

I reckon we could well look back on this winter as a great time to be buying mining shares for the long term. Although the near-term future is uncertain, forecasts are suggesting a 4.5% dividend yield from Rio Tinto rising to 4.8% next year, more than twice covered by earnings. At Anglo American we see a twice-covered 4.1% followed by 4.2%. And BHP Billiton has a 5.2% yield penciled in for the year ending June 2015, although that would only be covered 1.7 times.

Dividends like those are worth having at any time, and they look especially attractive when a cyclical sector is in a downswing.

Dividends from these miners might even make a nice contribution to a healthy retirement portfolio!

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Alan Oscroft has no position in any shares mentioned. 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.