FTSE 100 mining giant Antofagasta (LSE: ANTO) has been enjoying a pretty good run in recent times with its share price up 107% over the past year, and by a massive 203% since January 2016. Investors who bought the shares last September will have seen the value of their holding double in just 12 months.
Massive dividend hike
Last month the Chile-based copper mining giant reported a strong first half with earnings (before interest, tax, depreciation and amortisation) up 88% to $1.08bn, compared to just $575m for the first six months of 2016. Group revenue came in 42% higher at $2.05bn, as realised copper prices increased by 25% and copper sales volumes grew by 14%.
The improved performance led management to hike the interim dividend by a massive 232% to 10.3¢ per share in line with the company’s policy of paying out a minimum of 35% of underlying net earnings. However, with the share price now at four-year highs this equates to a prospective dividend yield of just 1.5% at current levels. Certainly nowhere near enough to gain the attention of income-focused investors.
As with all resource stocks, the direction of travel for Antofagasta’s shares is highly geared to the price of the commodity it produces, in this case copper. City boffins often make widely differing assumptions on the future price of metals, and this in itself can make it difficult to assess the company’s prospects.
Nevertheless, analysts’ consensus forecasts suggest that Antofagasta is likely to see a very healthy 52% uplift in underlying earnings for the current year to December. However, the strong share price rally means the miner is now trading on a very demanding P/E rating of 26 for 2017.
The red metal
For those who are bullish on the price of copper and still keen to gain exposure to the red metal, you might want to take a look at Kaz Minerals (LSE: KAZ) instead. As its former name (Kazakhmys) suggests, the copper miner’s main assets lie in the Central Asian republic of Kazakhstan.
The group’s share price is already up 80% since my last recommendation in March, and by a staggering 393% over the past 12 months. But if the price of copper continues to head higher, then I believe its shares are likely to outperform those of larger rival Antofagasta, thanks to a more down-to-earth valuation.
Much like its blue-chip counterpart, the FTSE 250-listed miner announced a very strong set of interim results last month, with gross revenue rising 230% to $837m as copper output more than doubled to 118kt during the first half of 2017. The company now expects full-year production to be between 235-260kt.
With underlying profits forecast to double by the end of the year, I see Kaz Minerals as a cheaper alternative to Antofagasta trading at just 13 times forward earnings, falling to just 10 times by the end of next year.
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Bilaal Mohamed has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.