Iron ore prices are holding up nicely despite the darkening outlook for the global economy. As a consequence, investor interest in Anglo American (LSE: AAL) has leapt in recent weeks. Shares in the FTSE 100 mining giant have risen 6% in value during the past month alone.
The commodities colossus continued to attract fervid attention from value hunters late last week, too. It was recently trading on a price-to-earnings (or P/E) ratio of 10 times for 2020 while carrying a corresponding dividend yield above 4%, too.
A FTSE 100 trap?
Market makers might be piling in but I’m not interested for even a second. I worry that demand for iron ore could be about to crash and with it the company’s earnings. And my fears have worsened after reading recent Morgan Stanley price forecasts. These suggest that an anticipated average iron ore price of $83 per tonne for 2020 will slip to $69 next year and $61 in 2022. The steelmaking ingredient was last dealing around the $90 per tonne marker.
I’d be much happier to stash the cash in Shanta Gold (LSE: SHG) than Anglo American. The brilliant outlook for precious metals is reflected by City brokers steadily upping their bullion price forecasts. Such upgrades are no real surprise given the steady stream of data showing how gold demand is rocketing amid expectations of a severe economic downturn.
Fresh trading data from the SPDR Gold Trust illustrates the strength of bullion interest right now. On Thursday it said that total gold holdings had leapt to 1,092.14 tonnes as of the middle of last week, the highest level since 2013.
Don’t just think that gold prices will shine in short-to-medium term, though. The economic and political fallout of the coronavirus crisis is likely to keep the flight-to-safety metal well-bought through much of the new decade. The likely preservation of ultra-loose monetary policy will continue to fuel prices of the hard currency, too. And I consider Shanta Gold to be a great way to play this.
A better buy
The bullish outlook for gold prices for this new decade are one reason to buy into the AIM-quoted company today. Another is the strong progress it continues to make on the operational front. Shanta Gold saw total output rise to 20,167 ounces in the first quarter of 2020. This is up from the 19,550 ounces that its New Luika gold mine in Tanzania produced in the prior three-month period.
This wasn’t the only cause for celebration, either. First quarter all-in sustaining costs also dropped to $833 an ounce from the $902 recorded in the prior quarter.
Shanta Gold’s share price has failed to react to these strong results and the improving outlook for bullion prices, however. Indeed it remains almost 10% cheaper from levels seen a month ago. This weakness, too, leaves the mining ace dealing on a forward P/E ratio of just 7 times. I reckon the stock’s far too good to miss at recent prices, unlike Anglo American.
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Royston Wild has no position in any of the shares mentioned.