Over the course of the last five years, it has paid to hold shares in Rare Earth Minerals (LSE: REM). In fact, shares in the lithium-focused exploration company have soared by 130% at the same time as the wider mining sector has slumped due to falling commodity prices and a slowdown in demand from China and other emerging economies.
In fact, the likes of Fresnillo (LSE: FRES) and Antofagasta (LSE: ANTO) have seen their share prices collapse by 54% and 48% respectively during the same time period. However, this means that they are now trading on very low valuations and, with the prospects for both companies (and the wider mining sector) being relatively upbeat, now could be a great time to buy a slice of them.
For example, over the next two years Fresnillo is forecast to increase its bottom line from 4.75p per share last year to 33p per share in 2016. That’s a whopping rate of growth and, when combined with its price to earnings (P/E) ratio of 36.5, equates to a price to earnings growth (PEG) ratio of just 0.3. This indicates that growth is on offer at a very reasonable price and that Fresnillo’s share price could bounce back strongly after the disappointment of the last five years.
Similarly, Antofagasta has huge appeal at the present time. In fact, the copper miner is expected to increase its net profit by 41% in the current year, followed by a further rise of 28% next year. This is clearly well in excess of the majority of its index peers and, with Antofagasta having a P/E ratio of just 16.8, equates to a very enticing PEG ratio of 0.5.
Of course, Rare Earth Minerals continues to have excellent long term potential, too. In fact, the net present value of its interests far exceeds its current stock market valuation and this shows that, even though its shares have had an excellent run in recent years, there could be much more to come. However, it remains a relatively small company that continues to be exposed to significant risks, with a notable risk at the present time being the outcome of the pre-feasibility study at its Sonora Lithium project. While this could provide a significant boost to the company’s share price, the results are very much a known unknown and could equally put Rare Earth Minerals’ share price under pressure.
So, while Rare Earth Minerals is cheap and has a bright future, the sheer scale of growth potential and the appeal of the valuations for Antofagasta and Fresnillo mean that they seem to offer the more enticing risk/reward profile. Certainly, they are likely to be highly volatile in the short run but, over the medium to long term, look set to deliver exceptional performance.