The mining sector is in turmoil. Concerns about the global economy have sent commodity prices crashing to multi-decade lows and, as a result, many miners are struggling to remain profitable.
However, this environment has presented a number of opportunities for Foolish investors with a long-term outlook.
Two such opportunities are Rare Earth Minerals (LSE: REM) and Anglo American (LSE: AAL).
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Over the past month, these two miners have fared better than most. Indeed, over the past 30 days Anglo’s shares have fallen 7.4% and Rare Earth has gained 13.5%. In comparison, larger peers Glencore and BHP Billiton have seen their shares fall by 31% and 9% respectively over the same period.
And it’s reasonable to believe that Rare Earth and Anglo’s outperformance will continue for the foreseeable future. Making the two miners a great duo for any investor looking to make a long-term bet on the mining sector.
Taking action
Anglo is one of the few miners that’s taking drastic action to cut costs and adjust to the current commodity price environment.
The company is planning to lower costs by $1.5bn per annum over the next 18 months. 6,000 jobs will go as part of this plan and around $400m per annum will be saved by improved operational productivity.
What’s more, Anglo is planning to reduce its portfolio of assets from 55 to 40, selling off non-core, low-return assets in favour of assets that produce a higher return on equity for the company.
Not only will these plans help Anglo weather the storm in the short term, but they should also help the company improve its long-term results. As a result, when the commodity market starts to rebalance, Anglo will be extremely well positioned to profit from the rebound.
Overall then, Anglo’s proactive restructuring is creating a business with an extremely attractive outlook for long-term investors. The company’s shares currently trade at a forward P/E of 12.2 and support a dividend yield of 7.3%.
Blue-sky potential
Anglo’s blue-chip status, high single-digit dividend yield and ambitious cost-cutting plan make the company one of the best bets on the mining sector’s recovery.
However, Anglo’s rebound will take time, and due to the size of the company, it’s unlikely to be a multi-bagger for investors. On the other hand, Rare Earth has plenty of blue-sky potential. That said, the company is still in its early stages of development, so it’s not suitable for all investors.
Nevertheless, Rare Earth’s recent lithium supply deal with Tesla Motors has significantly de-risked the company. Rare Earth’s outlook is now brighter than it has been at any other point in the company’s history.
With this deal in place, the sky is the limit for Rare Earth. The company may be a high-risk play, but with a potential upside of more than 400%, the reward is certainly worth the risk.
Foolish summary
All in all, Anglo and Rare Earth are a perfect partnership but, as always, only you can decide if these two miners are suitable for your portfolio.
