Why this mining stock is set to double!

Copper miner KAZ Minerals (LSE: KAZ) has released an upbeat third quarter production update today. Its shares have risen by 8% since the report shows that it is making good progress with its planned ramp-up in production. In fact, KAZ has the potential to grow rapidly and its share price could double over the medium term.

KAZ’s copper output has risen by 66% in the first nine months of the year. Its production growth has continued due to a ramp-up in production from assets such as Bozshakol and Aktogay. Its guidance for the 2016 full-year has been maintained at 135-145 thousand tonnes of copper cathode equivalent. This would be significantly higher than 2015’s production of 81.1 thousand tonnes.

However, KAZ is not only a copper miner. Its gold, silver and zinc production has also been strong of late. In fact, silver production is now expected to exceed the top end of the 2,500-2,750 thousand ounce guidance due to a lower than expected grade decline in the East Region in 2016. Zinc and gold production remain on-track to meet guidance.

The effect of KAZ’s rapid increase in production on profitability is set to be extremely positive. Its pre-tax profit is forecast to rise from £8m last year to £80m in the current year. It is then expected to rise to £148m in 2017, which could positively catalyse investor sentiment in the stock. Despite such a high growth rate, KAZ’s valuation remains relatively low. For example, it trades on a price-to-earnings growth (PEG) ratio of only 0.1. This indicates that there is tremendous upside potential and that a doubling of KAZ’s share price is very possible.

Of course, KAZ isn’t the only resources company which could be worth buying. An improved outlook for the sector has made other companies such as Glencore (LSE: GLEN) more popular among investors. And with Glencore having made considerable improvements to its balance sheet and cost profile, it is set to deliver improved financial performance over the medium term.

For example, Glencore is expected to return to profitability in the current year before increasing its bottom line by 61% next year. This puts it on a PEG ratio of only 0.4, which shows that it offers a wide margin of safety. This could prove to be crucial since the outlook for commodity prices could deteriorate in the coming months. In such a situation, Glencore’s shares could perform better than a number of its peers thanks to an appealing valuation.

However, with KAZ having a lower valuation it is the better buy at the moment. Its shares have the potential to double given the expected ramp-up in production across its asset base. Certainly, Glencore has huge appeal and it is making excellent progress as a business. But KAZ’s bright future is not adequately priced in by the market, which could make it a star buy for the medium term.

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Peter Stephens owns shares of KAZ Minerals. 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.