The performance of the mining sector has been akin to a rollercoaster ride in recent years. Commodity prices have been hugely volatile and have come under pressure at times. This has hurt profitability across the sector and caused investor sentiment to decline.
Now though, the ‘green shoots of recovery’ may be present, with investors seemingly becoming more positive about the industry’s prospects. As such, now could be the right time to buy these two mining stocks for the long term.
Reporting on Wednesday was goldminer Pan African Resources (LSE: PAF). The company’s Barberton Mines are on target to produce around 50,000 ozs of gold in the second half of the 2018 financial year. This would represent an increase of around 23% versus the first half.
The business is also seeking to improve future flexibility and sustain its rising gold production through development to the next high-grade platform. This will commence early in the next financial year and is expected to be in full production in the 2020 year.
Looking ahead, Pan African Resources is forecast to post a rise in its bottom line of 8% in the current year, followed by further growth of 29% next time. Since it trades on a price-to-earnings growth (PEG) ratio of just 0.2 it seems to offer excellent value for money at the present time.
The gold price has been buoyant in 2018. Its rise could be linked to the potential for higher inflation over the medium term. As such, now could be a good time to buy undervalued miners. Certainly, Pan African Resources is a relatively small entity which comes with high risk. But its return potential appears to be attractive.
Also offering upside potential within the mining sector at the present time is copper miner Antofagasta (LSE: ANTO). The company experienced a challenging period in the recent past, with its profitability coming under severe pressure. However, after making changes to its asset base and seeking to become more efficient, it now appears to be in the midst of a successful turnaround.
In the next two financial years its bottom line is expected to rise by 8%-9% per annum. While this may not be among the highest growth rates in the industry, the company appears to be confident in its future outlook. Evidence of this can be seen in its forecast rate of dividend growth. Shareholder payouts are expected to rise by 9% next year to put the stock on a forward dividend yield of 3.2%. This could make it a realistic income play – especially since dividends are due to be covered 2.2 times by profit next year.
Clearly, the mining sector could experience a difficult period if commodity prices fall. But with the global economy set to perform well, Antofagasta’s PEG ratio of 1.7 appears to be tempting for long-term investors.
Peter Stephens 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.