25 Jan Six-bagger Anglo American plc and Antofagasta plc are still too hot to ignore
I hope you had plenty of exposure to the mining sector over the past couple of years, because you should have made a heap of money in that time.
Globally diversified mining business Anglo American (LSE: AAL), which published its fourth quarter production report this morning, is one of the most spectacular. Its share price is up 666% as measured over the last two years and it continues to climb, rising 40% in the past six months.
Today’s report has left the share price largely unmoved, it is down 0.26% at time of writing, but this is a solid set of results, headlined with a 5% increase in copper equivalent production for 2017, although this fell 2% in Q4 after removing unprofitable and higher cost platinum and metallurgical coal volumes. Diamond production at its De Beers unit increased 5% on stronger trading conditions
Chief executive Mark Cutifani heralded “another strong operating performance” which he pinned on the group’s ongoing focus on productivity and disciplined, value-led approach to production. Ramping up the Gahcho Kué and Grosvenor mines helped, as did a strong performance from Sishen.
Anglo American produces diamonds, copper, platinum, iron ore, coal and nickel, and has benefitted from a resurgent China and the strong growth in metals prices over the last two years. If China slumps, and global growth disappoints, that will rapidly reverse. So you might want to take a view macro events. The group’s South African operations also face political risk.
Despite strong share price growth Anglo American still only trades at forecast 10.3 times earnings and yields a forecast 4.3%. Last year it reported that it had more than halved its net debt to $6.2bn, easing pressures on that front. Don’t buy it before checking out this mining growth monster.
A rising tide lifts all boats and London-listed Chilean copper miner Antofagasta (LSE: ANTO) has also been bobbing upwards, its share price rising 157% in the last two years. However, like Anglo American, its Q4 production update has done little to stir investors, despite CEO Iván Arriagada hailing “a strong year operationally”. I was cautiously optimistic on the stock last April.
Copper production fell 0.7% to 704,300 tonnes in line with guidance, due to expected lower grades, but is forecast to rise 1.5% to between 705,000-740,000 tonnes next year. Arriagada said the group’s disciplined approach to capital allocation allowed it to continue to invest in profitable tonnes throughout the cycle. New additions Zaldívar, Antucoya and Encuentro Oxides now account for 25% of group production, helping offset declines at the group’s mature assets.
Copper recently hit a three-year high of more than $7,000 a metric ton but has dipped slightly on rising stockpiles. Antofagasta is also a goldminer and full-year production fell 21.6% to 212,400 ounces, reflecting lower grades and recoveries at Centinela. It could fall further in 2018.
The pricey current valuation of 39.2 times earnings is set to tumble to 18 times with earnings per share (EPS) expected to grow 130% across 2017. EPS are forecast to grow just 1% in 2018 then 14% 2019. The forecast yield is 2%, covered 2.6 times. It is still hot but I would buy Anglo American first.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.