So, what about the mining industry? We can’t do without it, but in tough economic times it can have investors throwing up their hands in despair. Well, short-term investors anyway — those with a horizon of a decade or more can look beyond the cyclical nature of the business and see its long-term potential.
Today I’m taking a quick look at the five big names in the FTSE 100 to see how they square up.
They are Anglo American (LSE: AAL), Antofagasta (LSE: ANTO), BHP Billiton (LSE: BLT), Glencore (LSE: GLEN) and Rio Tinto (LSE: RIO). Here’s a snapshot of last year’s fundamentals together with the latest forecasts:
| Â | Anglo American | Antofagasta | BHP Billiton | Glencore | Rio Tinto |
|---|---|---|---|---|---|
| Market cap | £21.9bn | £7.8bn | £40.0bn | £48.7bn | £45.5bn |
| Year ended | Dec 2013 | Dec 2013 | Jun 2014 | Dec 2013 | Dec 2013 |
| EPS change | -8% | -52% | +10% | -25% | +10% |
| P/E | 10.2 | 19.9 | 12.1 | 15.3 | 10.0 |
| Dividend Yield | 4.0% | 7.1% | 4.0% | 3.3% | 3.5% |
| Dividend Cover | 2.46x | 0.70x | 2.08x | 2.00x | 2.88x |
| Year ending* | Dec 2014 | Dec 2014 | Jun 2015 | Dec 2014 | Dec 2014 |
| EPS change | -15% | +14% | -2% | +10% | -7% |
| P/E | 14.3 | 16.9 | 12.5 | 16.4 | 10.2 |
| Dividend Yield | 3.3% | 2.2% | 4.0% | 2.9% | 4.0% |
| Dividend Cover | 2.13x | 2.70x | 1.98x | 2.11x | 2.48x |
| Year ending* | Dec 2015 | Dec 2015 | Jun 2016 | Dec 2015 | Dec 2015 |
| EPS change | +19% | +9% | +12% | +37% | +7% |
| P/E | 12.0 | 15.5 | 11.2 | 12.0 | 9.5 |
| Dividend Yield | 3.4% | 2.1% | 4.2% | 3.2% | 4.3% |
| Dividend Cover |
2.44x | 3.02x | 2.13x | 2.57x | 2.46x |
* forecast
I’d rule out Antofagasta, whose share price is flat over five years at 791p, because it’s so relatively small compared to the other four and it’s focused largely on one commodity, copper. Copper is great, but I prefer some sort of spread of interest.
Strike!
Anglo American has suffered prolonged industrial action in South Africa, where it extracts platinum-group metals, and that led to a decline in profits for the first six months of this year — although it was offset to some degree by the sale of existing stocks. It’s had an affect on the share price, which has slumped more than 20% in the past five years. Industrial unrest is just not something I’d want, not when there are better alternatives.
Of the remaining three, Glencore hasn’t performed well since its merger with Xstrata back in 2011, and the share price is down nearly 30% to 371p since. And today, there’s nothing particularly attractive about its dividend yields and P/E valuation.
Down to two
That leaves BHP Billiton and Rio Tinto, both of which are nicely diversified.
In 2013, BHP saw iron ore contribute 30% to its turnover, with petroleum and potash making up 20%, copper 18% and coal 16%. For Rio, almost half of its 2013 turnover came from iron ore, with a little over 20% from aluminium, and 10% each from copper and energy.
Both companies have been reporting strongly rising production and shipments of their precious dirt, with both recording record production of iron ore in their last operational updates.
It’s Rio for me
I reckon both would make great long-term investments, but I’m sticking with Rio Tinto as my choice due to its lower P/E valuations and better dividend cover, even after its share price has beaten BHP’s over five years — Rio is up 25% to 3,235p while BHP is up just 13% to 1,896p.
I’ve had Rio Tinto in the Fool’s Beginners’ Portfolio since August 2012 and we’re up only a modest 6% so far, but we have had some decent dividend cash too.