The cyclical mining sector, volatile at the best of times, has been through a pretty rough patch during the recession. Falling worldwide demand, especially from China amid its feared slowdown, pushed mineral prices down and mining shares went with them.
But they’ve been bouncing back of late, with some of our top FTSE 100 miners reaching new 52-week highs in the past few weeks.
New ground
Shares in Glencore (LSE: GLEN), peaked above 379p on 28 July before dropping back below 360p — but they’re on the way up again and stand at 374p as I write.
Anglo American (LSE: AAL) did something similar with a closing high of 1,648p on 29 July (although that was a little short of the intraday peak of 1,678p set in May), before dropping back to the current 1,576p level.
And BHP Billiton‘s (LSE: BLT) day also came on 29 July, with the shares reaching a 12-month high of 2,102p. Again the price has retreated a little since then, to 2,037p.
The biggest market cap in the sector varies on a daily basis, with Glencore and Rio Tinto (LSE: RIO) (NYSE: RIO.US) differing by just a few tens of millions (for companies valued at £49bn). The latter has not managed the 52-week feat, but Rio’s shares reached close on 11 August at 3,502p, their highest since their February surge subsided.
Production rising
Why the bullishness? Well, our miners have been posting some impressive results.
Glencore reported a 24% rise on own-source copper production to 382,000 tonnes for the first quarter of the year, though zinc production was down 18% to 306,000 tonnes due to a couple of mines reaching commercial exhaustion. But ferrochrome output was up 29%, with own-sourced coal up 4% and gross oil up 37%.
In its first half, Anglo American saw iron ore production up 5% on the previous year, with total coal up 10%, copper up 12% and nickel up 35%. And in its full-year review, BHP Billiton reported a fourteenth successive annual production record for Western Australia iron ore, with output of coal, copper and petroleum all up.
Rio Tinto’s first half was similar, with Iron ore production up 10% to a new record, and copper up 23%.
What should you buy?
All good, but which is best? Here’s a quick look at some forward-looking fundamentals:
| Anglo American |
BHP Billiton |
Glencore | Rio Tinto | |
|---|---|---|---|---|
| EPS growth 2014 |
-14% | +19% | +9% | -6% |
| P/E 2014 | 15.0 | 13.0 | 17.4 | 11.3 |
| Dividend Yield 2014 | 3.3% | 3.7% | 2.8% | 3.7% |
| Dividend Cover 2014 | 2.1x | 2.1x | 2.1x | 2.5x |
| EPS growth 2015 | +20% | -3% | +38% | +8% |
| P/E 2015 | 12.5 | 13.4 | 12.6 | 10.5 |
| Dividend Yield 2015 | 3.4% | 3.7% | 3.1% | 3.7% |
| Dividend Cover 2015 | 2.4x | 2.0x | 2.6x | 2.5x |
Looking at that, although Glencore’s 38% EPS growth forecast for 2015 is very attractive, on overall balance of P/E valuation, dividend yields and dividend cover, Rio Tinto remains my pick of the mining sector — and Rio has also been cutting operation costs very nicely while still growing its production and shipping capacity. I have Rio Tinto in the Fool’s Beginners’ Portfolio, and it’s staying there.
