Are Antofagasta plc And Anglo American plc The Perfect Partners For BHP Billiton plc In Your Portfolio?

Today’s updates from Antofagasta (LSE: ANTO) and Anglo American (LSE: AAL) (NASDAQOTH: AAUKY.US) were somewhat mixed and, as a result, their share prices are down 3.6% and up 1% respectively.

In the case of Antofagasta, it increased gold and copper production in the fourth quarter, but this wasn’t enough to prevent production for the full-year being down on the prior year. Still, copper production was in-line with previous guidance but, looking ahead, the company cautioned that gold production will fall further in 2015, from 270,900 ounces in 2014 to an estimated 250,000 ounces in 2015. 

Lower grades contributed to a fall in gold production last year and this problem also affected Antofagasta’s copper production, too. It fell by 2.3% to 704,800 tonnes in the full-year but is expected to rise to 710,000 tonnes next year. Despite this, shares in the company are weaker due to lower than expected production guidance, as well as a lack of significant improvement in unit cost.

Meanwhile, Anglo American plans to make impairments moving forward, even though it increased annual iron ore production to a four-year high in 2014. In fact, Anglo American’s iron ore output rose by 4.7% last year as it attempts to maintain market share at a time when its rivals are also increasing production to fresh highs. However, with the iron ore price having sunk last year, it is perhaps inevitable that impairments will be made and, as a result, its share price has not been hit hard by the news.

Looking Ahead

Clearly, even diversified mining companies such as BHP Billiton (LSE: BLT) (NYSE: BBL.US) are struggling to grow their bottom lines at a time when commodity prices continue to be weak. And, looking ahead, there seems to be little prospect for a significant improvement in the status quo in the short term at least, which may lead many investors to decide that the likes of BHP, Anglo American and Antofagasta are perhaps not worth investing in.

However, with BHP having a price to earnings (P/E) ratio of 13.8 and trading on a yield of 5.6% (which is covered 1.3 times by profit), it appears to offer a sufficient margin of safety to invest for the long term. In other words, even though there may be more short term disappointment ahead, BHP’s share price seems to reflect that and, as a result, could respond much more strongly to positive news than to negative news.

And, with Antofagasta trading on a price to earnings growth (PEG) ratio of just 0.4, it also seems to offer great value at the present time. Meanwhile, Anglo American, like BHP Billiton, has a relatively low P/E ratio of 11.6 and yields 5.1%, with dividends being covered 1.7 times by profit.

As a result, and while they may be less diversified than BHP, Anglo American and Antofagasta both appear to be worth buying for the long term. Certainly, there may be further lumps and bumps in the short run, but for investors with a longer term outlook they appear to offer sufficient margins of safety to partner up with BHP in your portfolio.

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Peter Stephens owns shares of BHP Billiton. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.