These are the worst of times for mining stocks, especiallyAnglo American (LSE: AAL), the FTSEs biggest calamityin 2015. It continues to suffer aseason of darkness whilegold and silver minerFresnillo (LSE: FRES) enjoys a spring of hope. This is a tale of two very different mining stocks, but how does it end?
Anglo American pie
Anglo Americans recent share price performance is a woeful tale, withthe stock plunging 70% in the last six months. The 3.1bn mining giant nowtrades, quite astonishingly, at just 1.96 times earnings, and would be yielding an amazing 24% ifmanagement hadnthauledits dividendtothe guillotine latelast year.
The bad news keeps coming, with Investec downgrading the stockfrom hold to sell this week (what took itso long?) after cutting itsfull-year 2016 copper price estimate by 12.5% to $220 a pound. It also slashed itstarget price from 402p to 152p, blaming the the downgrade on the lower commodity price outlook, continued capex spend and a challenged balance sheet. Today Anglo Americantrades at 225p, which suggests plenty moredownside.
Anglo American hassuspended its dividend payment for 18 months while it radically restructures its portfolio, slashes costs and takes the axe tocapex. As the China meltdown intensifies, even this may not be enough. Nobody knows how bad China will get, but my worry is that its unprecedented boom will end in an unprecedented bust. The commodity super-cycle is spent, and I suspect Anglo American has even further to fall.
Fresnillo pillow
It has been a relatively glittering week for Fresnillo (LSE: FRES), which announced a 4.4% rise in full-year 2015 silver output to47m ounces and said its on track to reach its 2018 silver production target of 65m ounces.2015 goldproduction hit 762,000 ounces, beating revised guidance of 715,000 to 730,000 and surpassing its2018 target of 750,000 ounces. In the final quarter of 2015, gold production leapt24.5% year-on-year.
The gold price has stabilised lately, although its still 14% lower than a year ago, while silver is down 22%. This willdisappoint gold bugs, as precious metals are supposed to shine at times like these, whenshares are tanking and bond yields are low. It hasbeenhurt by thedeclining negative sentiment affecting other metals, and the lack of demand for hedges against non-existent inflation.
Investors in Fresnillo have been punished as a result, with the share price down 24% in the last year, although ithas stabilised lately, along with gold and silver prices. Fresnillos share priceis actually up5% in the last six months and, in marked contrast to the widercommodity meltdown, Goldman Sachs rates it a buy.
Gold could recover further as the crisis intensifies and prospects for further US interest rate hikes recede. The combination of stable prices and rising production suggests that ahappy ending ismore likely for Fresnillo than Anglo American, although there will be shocks andplot twistsalong the way.
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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.