These are the worst of times for mining stocks, especially Anglo American (LSE: AAL), the FTSE’s biggest calamity in 2015. It continues to suffer a season of darkness while gold and silver miner Fresnillo (LSE: FRES) enjoys a spring of hope. This is a tale of two very different mining stocks, but how does it end?
Anglo American pie
Anglo American’s recent share price performance is a woeful tale, with the stock plunging 70% in the last six months. The ÂŁ3.1bn mining giant now trades, quite astonishingly, at just 1.96 times earnings, and would be yielding an amazing 24% if management hadn’t hauled its dividend to the guillotine late last year.
The bad news keeps coming, with Investec downgrading the stock from hold to sell this week (what took it so long?) after cutting its full-year 2016 copper price estimate by 12.5% to $220 a pound. It also slashed its target price from 402p to 152p, blaming the the downgrade on the lower commodity price outlook, continued capex spend and a challenged balance sheet. Today Anglo American trades at 225p, which suggests plenty more downside.
Anglo American has suspended its dividend payment for 18 months while it radically restructures its portfolio, slashes costs and takes the axe to capex. As the China meltdown intensifies, even this may not be enough. Nobody knows how bad China will get, but my worry is that its unprecedented boom will end in an unprecedented bust. The commodity super-cycle is spent, and I suspect Anglo American has even further to fall.
Fresnillo pillow
It has been a relatively glittering week for Fresnillo (LSE: FRES), which announced a 4.4% rise in full-year 2015 silver output to 47m ounces and said it’s on track to reach its 2018 silver production target of 65m ounces. 2015 gold production hit 762,000 ounces, beating revised guidance of 715,000 to 730,000 and surpassing its 2018 target of 750,000 ounces. In the final quarter of 2015, gold production leapt 24.5% year-on-year.Â
The gold price has stabilised lately, although it’s still 14% lower than a year ago, while silver is down 22%. This will disappoint gold bugs, as precious metals are supposed to shine at times like these, when shares are tanking and bond yields are low. It has been hurt by the declining negative sentiment affecting other metals, and the lack of demand for hedges against non-existent inflation.
Investors in Fresnillo have been punished as a result, with the share price down 24% in the last year, although it has stabilised lately, along with gold and silver prices. Fresnillo’s share price is actually up 5% in the last six months and, in marked contrast to the wider commodity meltdown, Goldman Sachs rates it a buy.Â
Gold could recover further as the crisis intensifies and prospects for further US interest rate hikes recede. The combination of stable prices and rising production suggests that a happy ending is more likely for Fresnillo than Anglo American, although there will be shocks and plot twists along the way.