Copper mining giant Antofagasta (LSE: ANTO) is a well-run FTSE 100 company. Its strong balance sheet and focus on cost discipline and operating performance enabled it to continue investing through the recent cyclical downturn. And as today’s annual results show, it’s well positioned to deliver for investors as the cycle turns back up.
The company said that the average realised copper price in 2017 was 29% higher than in 2016. This helped it to post a 31% increase in revenue to $4,749m on marginally lower production of 704,300 tonnes and with non-core metals and its railway operation making a net positive contribution to the top line.
Due to miners’ operational gearing (relatively high fixed costs), increases in revenue are magnified at the profit level. As such, Antofagasta’s operating profit soared 99% to $1,841m. Together with increased profits from associates and joint ventures, this fed down to a 119% increase in underlying earnings per share (EPS) to $0.76 versus a City consensus of $0.75. And the board hiked the dividend 177% to $0.51, compared with City expectations of $0.35.
At current exchange rates, EPS translates to 54.8p and the dividend to 36.7p. The shares are trading 2.5% higher at 910p, as I’m writing, so the price-to-earnings (P/E) ratio is 16.6 and the dividend yield is just over 4%.
With the copper price buoyant, the company guiding on production of 705,000 to 740,000 tonnes for 2018 and having plans that could lift this to 800,000 tonnes in 2019-21, I see Antofagasta’s valuation as attractive and I rate the stock a ‘buy’.
Also on my blue-chip ‘buy’ list is Footsie gold miner Randgold Resources (LSE: RRS). The company released its annual results last month, posting a seventh consecutive year of record production and a 7% increase in revenue to $1,280m.
EPS advanced 12% to $2.96 (213p at current exchange rates) and the board doubled the dividend to $2 (144p). With the shares trading at 6,075p, as I’m writing, the P/E is 28.5 and the dividend yield is 2.4%.
Clearly this is a richer rating than Antofagasta’s. However, precious metals miners tend to trade on higher P/Es, Randgold’s balance sheet is even stronger than the copper miner’s, and there’s also been time for City analysts to revise their forecasts since Randgold’s results. The new consensus is for a 22% rise in EPS for 2018 to $3.62 (261p), bringing the forward P/E down to 23.3 and another hefty hike in the dividend to $2.82 (203p), pushing the forward yield up to 3.3%.
I view this valuation as attractive for the London market’s heavyweight goldminer, which ended last year with net cash of $720m on its balance sheet. The forecast growth for 2018 should be more than a flash in the pan, with the company reminding us today that its “10-year business plan is designed to increase net cash flows to support dividend and value growth and maintain Randgold’s position as a global industry leader in sustainable profitability.”
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G A Chester has no position in any of the 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.