At the end of 2014, we could have been forgiven for thinking the mining sector was making a bit of a recovery — all the big operators hit 52-week lows in mid-December, but then started to climb back as we reached the end of the year.
But the start of 2015 has seen mining shares turn back down again.
Any new iron?
Rio Tinto (LSE: RIO) (NYSE: RIO.US) closed 15 December at 2,617p, then bounced back to finish the year at 3,000p — a 15% recovery in just two weeks was looking impressive. But last week saw the price slide again, and as I write the shares are changing hands at 2,883p for a 4% fall in the New Year so far.
There’s been no bad news regarding Rio Tinto, and its third quarter finished strongly with a 15% rise in iron ore shipments, but still-dropping oil prices are being seen as a further sign of a general fall in industrial demand.
The picture is similar at the other two, with Anglo American (LSE: AAL) rebounding from a 15 December low of 1,099p to reach 1,201p by 31 December, before dropping back to 1,151p today — that’s a 9% recovery followed by a 4% drop.
Glencore (LSE: GLEN), the FTSE 100’s biggest commodities company since its merger with Xstrata, picked up 7% from its 15 December low of 280p to end the year at 299p, before shedding 4% to 287p.
Production strong
Again both companies reported upbeat third-quarter figures, with Anglo American reporting a big rise in iron ore and Glencore revealing more modest but generally rising production across the board.
Fears of an oversupply, especially of iron and oil, are keeping share prices depressed, so is this a good time to by buying?
All three are expected to see earnings per share (EPS) fall this year, but with current forecasts for the next two year looking positive, forward P/E multiples are looking attractive.
We have a 14% EPS fall for 2015 followed by a 17% rise in 2016 forecast for Rio Tinto, giving us P/E values of 11.2 and 9.6. Growth of 4% followed by 32% would drop Anglo American’s 2016 P/E to 8.1, and 28% and 34% EPS rises would give us a multiple of 8.5 for Glencore.
Nice dividends too
At the same time, we’re looking at well-covered strong dividends, yielding approximately 5% for Rio, and around 4.5% for Anglo and Glencore. Time to get in for the long term at a low point in the cycle? Could be.