Today I’ll be taking a closer look at three mining heavyweights in the FTSE 100, and asking which ones are worthy of your hard-earned cash.
Cheap at half the price
Glencore (LSE: GLEN) is an Anglo–Swiss multinational commodity trading and mining company headquartered in Baar, Switzerland. Glencore is actually an acronym for Global Energy Commodity Resources. The current company was created through a merger of Glencore with Xstrata in 2013, and is also the world’s third-largest family business.
The years since that merger have been tough for most mining firms, Glencore being no exception. The rapid fall in commodity prices has helped the share price halve from around 380p in July 2014 to its present level of around 160p. But after four years of earnings declines, there may be some hope on the horizon. Earnings should remain flat this year while analysts are predicting an impressive 85% rise in 2017.
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What about the valuation? Well, Glencore trades on 39 times forecast earnings for the current year, falling to 22 for the year ending 31 December 2017. The shares look expensive to me, given the high P/E rating, and there could be further falls if the ambitious growth forecast for 2017 fails to materialise.
Rebound ahead?
Anglo American (LSE: AAL) is a multinational mining company based in Johannesburg, South Africa and London. It produces around 40% of the world’s platinum, as well as being a major producer of diamonds, copper, nickel, iron ore and coal. The company has operations in Africa, Asia, Australasia, Europe, North America and South America.
As with Glencore, the share price has taken a tumble, falling from around 1,700p three years ago, to its present level of around 500p. Four straight years of earnings falls seem set to continue with a 47% drop this year, but followed by a 71% rebound pencilled-in for 2017.
Anglo American trades on 23 times forecast earnings for the current year, falling to 13 for the year ending 2017. The shares look fully- priced to me given the moderate P/E ratio, so I see no compelling reason to buy at the present time.
Copper play
Antofagasta (LSE: ANTO) is a Chile-based copper mining group with operations in Chile and Peru. It’s one of the world’s largest copper producers.
Unfortunately for Antofagasta, and for copper-producing rivals like Kaz Minerals, the price of their core commodity has fallen sharply in recent years, resulting in a catastrophic decline in revenue. However, City experts are predicting a less gloomy future. An anticipated increase in production is expected to generate a 13-fold rise in earnings this year, followed by a further doubling of earnings in 2017.
Antofagasta trades on 72 times forecast earnings for this year, falling to 33 for next. But the shares look seriously overvalued at the moment, even after factoring-in the sky-high growth forecasts and I see them plummeting if the company fails to deliver the ambitious earnings growth. This one isn’t for the faint-hearted.
What next?
In my opinion there’s absolutely no reason to be tempted by any of these mining giants at the present time. In particular the demanding valuations for Glencore and Antofagasta make them very risky investments indeed.
