The mining sector has enjoyed a relatively prosperous year in 2016. Commodity prices have been much more positive than in recent years, while investor sentiment towards the sector has improved. Although this has caused major gains in a number of mining companies’ share prices, there are still good value opportunities on offer. Here are three mining companies that `could rise by 25% or more in 2017.
A cheap gold stock
Gold miner Centamin (LSE: CEY) has risen by 100% in 2016. However, I believe that it continues to offer good value for money, as evidenced by its price-to-earnings (P/E) ratio of 8.5. This indicates that Centamin could rise by over 25% since it would still only trade on a P/E ratio of 10.6 if that were to take place.
In terms of positive catalysts to push Centamin higher, the uncertainty which is likely to be a feature of 2017 is perhaps the most obvious. Brexit and a Trump Presidency could cause investor sentiment towards risk-on assets to come under pressure and investors could therefore turn to lower risk assets such as gold. And with Centamin increasing its gold production, it is well-placed to benefit from a potential rise in the price of the precious metal.
Furthermore, Centamin could also benefit from higher US inflation. Trump’s higher spending and lower taxation economy could cause the price level to rise at a faster pace. In such a scenario, gold and Centamin could become more popular among investors.
A diversified miner
BHP Billiton’s (LSE: BLT) decision to spin-off non-core assets looks set to yield greater efficiencies and productivity over the medium term. Alongside a brighter outlook for commodity prices, BHP is expected to record a rise in earnings of 276% in the current financial year. This puts the company’s shares on a price-to-earnings growth (PEG) ratio of just 0.1, which shows that they have a wide margin of safety. As such, even if commodity prices disappoint somewhat, BHP’s shares could still deliver strong growth in 2017, with gains of 25%+ being on the cards.
In addition, BHP remains a strong income play. It has a yield of 3% and with further profit growth its dividend is likely to rise in future years. BHP’s new dividend policy of paying out a percentage of profit to shareholders means that its financial outlook is now more sustainable, which should help to improve investor sentiment in 2017.
A turnaround play
Anglo American (LSE: AAL) is in the midst of a stunning turnaround. The diversified mining company has sought to become a more efficient and streamlined business and this is having a positive impact on its bottom line. For example, Anglo American is expected to return to profitability in the current year before recording a rise in earnings of 28% next year. This puts it on a PEG ratio of 0.3, which suggests that 25%+ growth is very achievable over the medium term.
Anglo American is expected to recommence dividends in 2017. Although this is likely to mean a yield of only 1.5%, it shows the market that the company is returning to full financial health following a tough period. It also indicates that Anglo American’s management team is optimistic about its future prospects, which could help to improve investor sentiment in the stock.