Rio Tinto plc Vs BHP Billiton plc Vs Centamin PLC: Which Miner Should You Buy?

Shares in gold producer, Centamin (LSE: CEY), have risen by over 3% today after the company released an encouraging trading update. Pretax profit increased in the first half of 2015 versus the same period a year earlier, rising from $32m to $47m. This has allowed Centamin to raise its interim dividend by around 11% and, with its cash flow also improving, reinvest in potential future growth opportunities, too.

Furthermore, Centamin confirmed its full year production guidance and expects to produce between 430,000 and 440,000 ounces of gold in the current year. And, with it remaining debt free and having considerable cash resources, it seems well prepared to weather any storm that may lie ahead, for example continued weakness in the price of gold.

Looking ahead, Centamin’s bottom line is expected to fall by 37% in the current year which, while disappointing, is forecast to be offset somewhat by a rise in earnings of 28% in 2016. This puts Centamin on a hugely appealing price to earnings (P/E) ratio of just 8.5, which indicates that its share price could move significantly higher.

Of course, the mining sector offers many more excellent opportunities at the present time, with the likes of Rio Tinto (LSE: RIO) and BHP Billiton (LSE: BLT) also having stunning long term total return potential.

Cutting costs

In the case of BHP, it remains a company in the midst of a major transitional period. For example, it recently spun-off its non-core assets and is in the process of implementing cost cuts so as to improve its margins in the medium to long term. And, while great changes bring great uncertainty, they should allow the company to improve its profitability and become a more appealing business in the long run, which has the potential to lift investor sentiment.

Meanwhile, Rio Tinto appears to be doing all of the right things to overcome the weakness in the iron ore market. It has increased production, concentrated on lowering its cost curve and prioritised a very generous dividend which puts the company on a yield of 5.8% at the present time. Looking ahead, Rio Tinto is forecast to grow its bottom line by 12% next year following what is expected to be a tough 2015. Using next year’s anticipated earnings puts Rio Tinto on a forward P/E ratio of 14.4, which indicates that it offers good value for money.

The pick of the bunch

Clearly, BHP offers an excellent dividend, too. Its shares currently yield a whopping 7.1%, but with dividends not due to be covered by profit in the next couple of years, a cut in the company’s shareholder payouts would not be a major surprise. As a result, Rio Tinto appears to be the preferred income choice, since its dividends are due to be covered 1.2 times by profit next year, with its yield also being much higher than Centamin’s yield of 3.2%.

Furthermore, Rio Tinto offers greater size and scale than Centamin and, while its valuation is less appealing than its gold mining peer, with the outlook for commodities being relatively uncertain, investors may seek out larger, more established companies for the long haul. Therefore, although all three companies appear to be well worth buying at the present time, Rio Tinto seems to be the pick of a very enticing bunch.

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Peter Stephens owns shares of BHP Billiton, Centamin, and Rio Tinto. 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.