Life as an investor in mining stocks has been just about as bad as it gets over the last year. Thats because a wide range of commodities have seen their prices fall, which has caused profitability to weaken considerably even though production levels have increased and costs have been cut back to the bare bones.
This, though, creates a superb opportunity for long-term investors to benefit. Not only have a number of mining companies become more efficient and more appealing as businesses, their valuations have fallen considerably and this means that they potentially offer the prospect of significant capital gains.
Here are three prime examples that appear to be worth buying right now.
Rio Tintos (LSE: RIO) (NYSE: RIO.US) strategy of increasing production in the wake of continued falls in the price of iron ore appears to be a very sound move. Thats because not only does it help to stabilise the companys bottom line, it also allows Rio Tinto to make full use of its ultra-low cost curve so that it can increase market share and position itself favourably for the long run relative to its peers.
Certainly, increasing production is likely to exert downward pressure on the price of iron ore, but Rio Tinto appears to be taking a long-term approach and this is good news for its shareholders. And, with Rio Tinto trading on a forward price to earnings (P/E) ratio of just 13.6, it seems to offer good value for money given its strengthening long term position.
A bargain buy
Having recently reiterated full-year guidance despite a fall in production from its Sukari gold mine, Centamin (LSE: CEY) appears to be a bargain buy. Certainly, its shares have been hit far less hard than many of its sector peers and are, in fact, up almost 2% in the last year. However, this does not mean that they lack value or are not worth buying.
In fact, Centamins share price performance is rather surprising, since it is expected to report a bottom line this year that is 60% lower than it was just two years ago. However, looking ahead, it is forecast to bounce back strongly next year with growth of 20%, which makes its P/E ratio of 10.8 appear to be exceptionally low for a company that has previously grown its bottom line in four of the last five years.
The market reacted positively to Antofagastas (LSE: ANTO) decision to sell its Chilean water and treatment services business for $965m. The proceeds from the deal will allow Antofagasta to ramp up investment in its mining projects, which could provide a stimulus to its bottom line.
Of course, the next two years are set to be highly prosperous ones for Antofagasta. It is forecast to post earnings growth of 55% during the period and, while its share price has risen by 11% in the last three months, its shares still offer good value for money given the upbeat growth outlook. For example, Antofagasta has a price to earnings growth (PEG) ratio of 0.6 and, with a renewed focus on its mining operations, its shares seem to be well worth buying for the long term.
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