African Potash Ltd, Vedanta Resources plc & Polymetal International PLC: 3 ‘Must-Have’ Mining Stocks?

Shares in African Potash (LSE: AFPO) have soared by as much as 20% today after the exploration company released an encouraging update. It states that the company has successfully dispatched 20,000 metric tonnes (MT) of urea fertiliser stock in partial satisfaction of the 50,000MT purchase order with a Zambian customer. This leaves 5,000MT of urea fertiliser stock as well as 25,000MT of NPK D Compound left to be dispatched so as to fulfil the order.

Total revenue from today’s dispatch amounts to $10.16m, with a sale price of $508 per MT being achieved, and African Potash will be paid on the basis of a 30 day back to back Letter of Credit. Encouragingly, the margins achieved on the sale are in-line with previous guidance and, with it being the company’s first ever trade, it indicates that its strategy of generating immediate, positive cash flow through which to finance future growth has got off to a pleasing start.

Clearly, there is a long way to go before African Potash reaches its full potential and, while today’s news is undoubtedly a step in the right direction, its goal of building a vertically integrated platform for the mining, production and distribution of fertiliser in Africa is unlikely to be delivered without future challenges.

Therefore, while less risk averse investors may be interested in the stock, it remains a very small business which has just inked its first ever deal. Therefore, it is relatively high risk and, with a number of cheap and highly profitable mining companies on offer at the present time, many investors may choose to look elsewhere in the sector for long term growth.

One such mining company which has significant appeal is precious metals miner Polymetal (LSE: POLY). It trades on a price to earnings (P/E) ratio of just 13.3 and, with its bottom line due to rise by 5% this year, could be a relatively stable mining play.

Certainly, the price of gold could come under pressure as US interest rates rise, since the price of the precious metal has historically been inversely related to interest rates. However, with Polymetal due to report a return to profitability for 2015 after two consecutive years of losses, investor sentiment could improve and push its share price upwards.

Furthermore, with Polymetal yielding 3.1% from a dividend which is due to be covered 2.5 times by profit this year, it appears to be a relatively enticing income play, too.

Similarly, buying a slice of Vedanta (LSE: VED) also seems to be a sound move for the long term. Like Polymetal, it is expected to move back into profitability in the current financial year and, looking ahead to next year, is forecast to increase its pretax profit from £217m to almost £550m.

This rapid rate of growth could positively catalyse investor sentiment and, with Vedanta trading on a price to book (P/B) ratio of only 0.13 (using its most recent interim results net asset figure), there appears to be considerable upward rerating potential on offer.

As with any resources company, Vedanta is highly dependent upon commodity prices. But, while it is therefore relatively risky, its valuation indicates that now could be a good time to buy for the long term.

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Peter Stephens 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.