Today I’ll be taking a closer look at diversified mining group Anglo American, Mexican silver miner Fresnillo, and Chilean copper play Antofagasta. Should you steer clear of these FTSE 100 mining giants or should you get ready to pile-in?
Platinum warning
Diversified mining giant Anglo American (LSE: AAL) has warned that it expects first half profits for its platinum business to fall by at least 20% due to weaker metal prices. The company issued the news under South African rules requiring companies to publish a trading statement as soon as they become aware that the next financial results will differ by at least 20% from the year-earlier period.
Anglo American Platinum produces around 40% of the world’s supplies of that precious metal and no doubt the news will have a detrimental effect on the group’s first half results later this month. Shares in the FTSE 100-listed miner have more than doubled since the start of the year, and are now trading at 25 times forecast earnings for 2016, considerably higher than historical levels. But analysts are predicting a 36% fall in earnings for the full year, and the company isn’t expected to pay dividends for 2016. I would wait for a better valuation and marked improvement in the outlook before giving the shares a second look.
Far too precious
Precious metals miner Fresnillo (LSE: FRES) has enjoyed a strong week after spooked investors looked for safe havens among the London-listed precious metals firms following the Brexit vote last week. Although the Mexico-focused miner produces significant quantities of gold each year, its main attention is on silver and it’s the world’s largest primary producer of the white metal.
I expect that in the weeks, months and even years to come, investors will flock to Fresnillo in times of uncertainty along with fellow large-cap miner Randgold Resources. But whereas Randgold trades on a lofty rating of 41 times earnings for the current year, this is dwarfed by the forward price-to-earnings multiple of 78 awarded to Fresnillo by the market. At these levels the risk/reward profile looks shaky, and Fresnillo seems the worse buy given the far-from-modest valuation.
Copper weakness
It’s safe to say that Chile-based copper producer Antofagasta (LSE: ANTO) has had a torrid time in recent years. Revenues and profits have nose-dived as the price of the red metal has headed south. Last year pre-tax profits slumped to just $259m from $1.5bn a year earlier, with underlying earnings per share shrinking by a staggering 99% to 0.6¢, compared to 42.8¢ reported for the previous year.
Unfortunately for the South American miner affectionately known as Fags, copper prices remain weak as the pace of growth in the Chinese economy continues to disappoint. In my opinion it may be wise to take a back seat until the outlook for copper prices improves.