Why BHP Billiton plc Is A Better Buy Than Randgold Resources Limited And Polymetal International PLC

Encouraging progress

Today’s update from gold miner, Randgold Resources (LSE: RRS) (NASDAQ: GOLD.US), is relatively positive and shows that the company is making encouraging progress across all of its major assets in Africa. Furthermore, the company remains upbeat regarding the future for mining in the Ivory Coast, where a new mining code has been introduced, and is positive about its future prospects.

For example, the recovery rate at Randgold’s Tonton mine has been steadily improving as a result of the commissioning of new hydrocone crushers, with capacity forecast to rise over the medium term as a number of new crushers are installed. Furthermore, Randgold has identified a number of new prospects, with a first-phase diamond drilling programme currently underway in the Boundiali permit.

Looking ahead, Randgold is forecast to increase its bottom line by 24% next year even though the price of gold recently reached a five year low. Of course, the fall in the price of gold has been less extreme than for some other commodities (such as oil and iron ore) and, while the financial challenges in Europe have abated somewhat, its future seems to be relatively robust. As such, Randgold’s price to earnings growth (PEG) ratio of 0.8 holds great appeal and it appears to be well-worth buying at the present time.

Very desirable

Similarly, precious metals peer, Polymetal (LSE: POLY), is also a very desirable stock at the present time. That’s at least partly because it trades on a very low price to earnings (P/E) ratio of just 9.2, which indicates that there is significant upward re-rating potential. Furthermore, Polymetal offers superb dividend potential, with the company’s shares currently yielding a very enticing 4.5%.

However, it’s the dividend growth potential that is on offer which really appeals. For example, Polymetal currently pays out just 42% of net profit as a dividend, which means that there is significant scope for a rapid rise in shareholder payouts over the medium to long term.

Better buy

Despite the potential of Randgold and Polymetal, BHP Billiton (LSE: BLT) (NYSE: BBL.US) still seems to be the better buy. It offers a very strong balance sheet and a degree of diversity that is difficult to match among resources companies. Furthermore, it is in the midst of a transitional period that has seen a number of non-core assets divested, as well as improving efficiencies, which could boost its long-term profit potential. And, with BHP adopting a strategy of increasing output during a weak price environment, it is squeezing less financially sound rivals and, in the long run, this could improve its position relative to its mining sector peers.

Despite BHP’s bottom line being forecast to come under pressure this year and next, it appears to be the pick of the three stocks. Its yield of 6.9% is exceptionally high and, while dividends are likely to be cut in order to allow sufficient coverage by profit, it remains an appealing income stock with a bright long term future.

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Peter Stephens owns shares of BHP Billiton. 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.