A Trio of Mining Favorites: Copper, Gold and Iron Ore

11/20/2019 5:00 am EST


Carl Delfeld

Chief Analyst, Cabot Global Stocks Explorer

Commodities and commodity stocks also go through their own cycles and the big gains come to those who jump in when commodity prices are down and forming a bottom, or in the early stages of an uptrend, notes Carl Delfeld, editor of Cabot Global Stocks Explorer.

That’s where many commodities are right now, including copper. The slowdown in global growth, particularly in China, has caused copper prices to slumber even though demand remains quite positive.

Another attraction to investing in large mining companies right now is that they will provide some welcome international diversification and value; many also offer some nice dividends for much needed income. Let’s look at three global mining stocks that could hit pay dirt if you have a little patience for the cycle to turn:

The first is Phoenix-headquartered Southern Copper Corporation (SCCO), which engages in mining, exploring, smelting, and refining copper and other minerals in Peru, Mexico, Argentina, Ecuador and Chile. The company is primarily involved in the mining, milling and flotation of copper ore.

Southern Copper’s share price has a good record of closely following copper prices so it is an excellent proxy for copper but much of its production is in Chile, which accounts for 28% of world copper production and is going through some turbulence as protests have captured headlines causing some investors to hit the pause button.

Another idea is Freeport-McMoRan (FCX), which primarily produces copper as well as gold and molybdenum as by-products. The company owns and operates copper mines in the U.S., Peru, Chile and Indonesia.

Freeport is the world’s most significant copper producer, with very little Chile exposure. Its largest mine is the Grasberg mine located in Indonesia, representing the second-largest copper mine in the world.

The Grasberg mine has entered a period of transition from open pit to underground mining and expects to see a net decline of about $1.1 billion in revenue in the next couple quarters as a result. Despite this period of transition and the weak copper price environment, I believe Freeport-McMoRan is an attractive long-term option for investors.

The most conservative play may well be London-based Rio Tinto (RIO), the largest mining company in the world. Rio Tinto employs more than 47,000 people across 35 countries on six continents producing gold, diamonds, aluminum, copper, titanium, iron ore and other industrial and rare metals.

Infrastructure, construction, communications, transportation, healthcare and green energy all rely on what Rio Tinto digs out of the ground and sells all over the world. In the first half of 2019, gross revenue rose marginally to $21.8 billion, cash flow from operations increased 22%, and earnings increased 12%.

The company expects debt to fall 40% in 2019 and has $9.5 billion in cash on hand. The frosting on the cake is that its stock trades at only seven times trailing earnings and has a current dividend yield of 5.7%.

So if you have some cash to invest and are looking to get ahead of the value commodity curve, these three global mining stocks would be a good place to start.

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