So the world has been in recession, metals and minerals prices are down, and shares in miners have slumped. Remember when the banks went through a bad patch and their share prices collapsed? That was the time to buy, and you’d have made a nice profit had you gone against the crowds.
It’s my view that we’re at the same stage with the mining sector now, and it looks like the market might finally be turning.
Rio Tinto
Look at Rio Tinto (LSE: RIO)(NYSE: RIO.US). At 2,965p, Rio shares are way down on their 2011 peak of more than £46. But since the price reached a low of 2,600p in mid December, it’s been picking up again. In fact, that’s a 14% gain in just five months.
There’s an EPS fall forecast for this year before predicted growth in 2016, but Rio has already put in what it called a “solid first quarter production performance” this year with yet another rise in iron ore output, and with CEO Sam Walsh saying that “…our aim is to protect our margins in the face of declining prices and maximise returns for shareholders throughout the cycle“.
With a P/E of 16.5 for this year, dropping to 13.5 for 2016, and with a dividend that’s been growing throughout and is expected to yield 5% and more, I reckon Rio Tinto is cheap — and the company seems to think so too, having started a $2bn share buyback programme in April.
BHP Billiton
BHP Billiton (LSE: BLT)(NYSE: BBL.US) has also posted strong production figures, with the nine months to March bringing in production records for 10 of its operations and for five products — and the company is expecting a 16% production growth for the two years to the end of the current financial year.
Again we’re looking at dividend yields of more than 5% and rising, although with EPS not expected to turn around before the 2016-17 year the shares are on higher P/E multiples — 16.5 this year and nearly 20 next.
But the share price has also been turning, up 25% since its 52-week low in December to 1,555p today.
Anglo American
Then we come to Anglo American (LSE: AAL), the hardest hit of the three with a 67% share price fall from 2011’s high of more than £34. Today’s price of 1,112p does represent an 11% recovery since the start of April, mind. And though we have seen a few false starts from the shares only for them to resume their downward plunge, coupled with the rest of the sector I reckon we’re looking at a change in sentiment.
Anglo American is another that’s not expected to grow its earnings until next year, but forecasts suggest a P/E for the year to December 2016 of under 12. And with a predicted 5% yield, the dividend would be the best covered of today’s three.