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For ASX mining stocks the trading year 2014 appears to have begun where 2013 left off – with the Materials Sector dragging down the overall market in early trading. 

Miners rallied late in the year as the predicted drop in iron ore prices and Chinese demand never came to pass.  Most miners are down month to month as we begin a new year.  With some predicting a rise in commodity prices in 2014, sorting through some of Australia’s top mining related stocks seems like a good way to kick off the new investing year.

To that end we checked the Leading Mining and Oil Stocks. We found five mining stocks with fully franked dividend yields over 3.5% and Price to Earnings Ratios (P/E) under 15, qualifying these shares as potential income and value investments.  There were two other stocks of interest with unfranked dividends and low P/E’s that are worth a look.  The table (found at the end of the article) includes the fully franked yielders, listed alphabetically.

We included total shareholder returns – a combination of share price appreciation and dividends – for one, three, and five year periods to ferret out those who best weathered the mining downturn.

The obvious outperformer here is BC Iron Ltd (BCI).  Thomson/First Call shows 4 analysts with Strong Buy recommendations on BCI; 3 with Buy recommendations; and 4 at Hold.  Among Australia’s major analyst firms Macquarie had an Outperform rating as of 23 October 2013 and BA-Merrill/Lynch had a High Risk Buy recommendation as of 19 August 2013.

BCI operates in Western Australia and its JV with Fortescue Metals is its principal asset there. BCI uses Fortescue’s infrastructure for transport, allowing for low production cash costs of about $40 to $44 dollars per tonne.  In the face of volatile iron ore prices and vacillating Chinese demand, low cost iron ore producers clearly have an edge.  For FY 2013 BCI reported underlying net profit after tax of $71.4 million, a 41% increase from the prior year’s reported $50.4 million.   However, when you include one-off charges including payments to Fortescue, the reported NPAT was $48.8 million.  Revenues were up 59%, from $204 million to $325 million.  In December of 2013 BC Iron became the only miner to graduate to the ASX 200 XJO Index, with 6 other mining stocks dropped from the list.  Despite its impressive past performance the stock is not immune to investor concerns and is down almost 4% month over month.  Here is the chart:

Maca Limited (MLD) is a relative newcomer to the ASX, going public in late 2010.  Since that time the stock price is up close to 80%.  The company is into mining and civil construction, but the majority of its revenue and profit comes from mining services such as drilling and blasting, crushing and screening, and loading and hauling.  Note that of those services, only drilling and blasting is apt to take a hit from reductions in mining expansion while the other services stand to benefit from the ramped up iron ore production throughout Australia.   Maca serves both iron ore and gold miners with customers including Atlas Iron, Regis Resources, Arrium, Sinosteel, and Barrick Gold.

In its first Full Year Report in 2011 the company reported 60% revenue increase from its last year of operation as a private company along with an 81% increase in NPAT.  Company management was comfortable enough with performance to declare a dividend of $0.06 per share which has grown to $0.13 per share for FY 2013.  Revenue and NPAT have grown each year as well with first year revenues of $247.5 million rising to $474 million in 2013 and NPAT increasing from $27.1 million to $49.5 million.  Here is a price movement chart for MLD since it began trading on the ASX:

Mount Gibson Iron (MGX) saw its share price rebound from a dismal start in 2013 and is now up 21% year over year.  The company has a respectable if not spectacular shareholder rate of return over the last five years and has a 2 year earnings growth forecast of 14%.  Mount Gibson’s balance sheet is solid as a rock, with $278.7 million total cash as of the most recent quarter against only $37.1 million in total debt.  Gearing is relatively insignificant at 3%.  In addition, the book value per share (MRQ) is $1.08 with the stock trading under one dollar.  Check the company’s balance sheet and you will see this is a stock with tangible assets; not a load of goodwill and other intangibles.  Company management has stated it is considering expansion opportunities in its Western Australia operating area and potential acquisitions as well.  In December of 2013 Mount Gibson acquired a hematite iron ore asset from Gindalbie Metals

Despite all this, analysts remain unconvinced.  Thomson/First Call reports 13 analysts covering the stock with only 3 Strong Buys and 5 at Underperform or Sell.  Amongst the major analysts only CIMB Securities and Citi appear bullish on the company.  The Citi Buy recommendation dates back to October 2013, citing the company’s strong cash position.  CIMB moved its recommendation from Reduce to Add in mid-December 2013, predicting a 25% upside for investors in MGX in 2014 due to the declining Australian dollar and an upgraded forecast for iron ore prices through 2015.  The most recent recommendation came on 08 January 2014 when Credit Suisse upgraded the shares from Underperform to Neutral, also citing healthier forecasts for iron ore prices.  The following one year price movement chart for MGX shows the roller coaster ride many investors in iron ore stocks experienced in 2013.

Gold Miners Northern Star Resources Ltd (NST) and Regis Resources Ltd (RRL) both had rough days in 2013 but have started the year on fire, although Regis has fallen off in the last few days.  Earlier in the trading week beginning on 06 January 2014 NST was up about 32% and RRL up about 12%.  Here is a one month price chart for the two companies.

Northern Star seems to have gotten a bump from the 23 December 2013 announcement of its acquisition of the Plutonic Gold Mine in Western Australia from the world’s largest gold miner, Barrick Gold Corporation.  Northern is on the lookout for more deals as more gold producers look to shed assets.  As of the most recent quarter Northern Star had about $55 million total cash against $11 million in total debt.  The tab for the Barrick Gold acquisition comes to $25 million.  

Macquarie is alone among major analyst firms in covering the stock.  The analyst there has an Outperform recommendation on the company, calling it a favorite in mid-cap Australian gold stocks.  Northern Star increased revenue from $100 million in FY 2012 to $144.3 million in FY 2013 with NPAT increasing from $22 million to $28.3 million.  

With a market cap over $1 billion, Regis Resources is twice the size of Northern Star and commands more analyst coverage.   Thomson/First Call reports 19 analysts covering the company with 2 Strong Buys, 3 Buys, 10 Holds, 3 Underperforms, and 1 Sell.  On 28 October 2013 the stock was downgraded to Neutral from Outperform at Macquarie and from Neutral to Underperform at BA-Merrill/Lynch.  On 04 January 2014 Credit Suisse upgraded RRL to Neutral from Underperform, citing a trade-off between falling gold prices and the falling AUD.  The analyst there believes the price of gold will fall below US$1,000 per ounce while the AUD/USD will drop to $0.87.  Regis has three low cost gold mines in operation.  The company reported impressive 2013 Full Year results, with both revenue and NPAT more than doubling from FY 2012.  Revenue increased from $170.4 million to $416 million and NPAT went from $68.2 million to $145.7million.

The final table includes the two stocks with unfranked dividends.  Both have rewarded investors with sleepless nights over the last year.  Here is the table:

Company

(Market Cap)

Code

 

Share Price

52 Wk % Change

P/E

Dividend Yield

1 Year Total Shareholder Return

(Average Annual Rate)

3 Year Total Shareholder Return

(Average Annual Rate)

5 Year Total Shareholder Return

(Average Annual Rate)

Oz Minerals

(($955m)

OZL

$3.15

-55%

N/A

9.5%

-52%

-39%

-7.4%

PanAust

($1.0b)

PNA

$1.8

-48%

9.4

3.9%

-37.2%

-22.7%

+24%

 

These stocks have been beaten about year over year but things could change.  First, here is the one year chart for the two companies:

Copper and Gold miner Oz Minerals Ltd (OZL) is something of a mystery.  Shareholders haven’t seen a positive total annual return in 10 years.  Our table does not include the 10 Year number, which is -7.4%.  On 11 December 2013 Oz shocked the market with an extremely downbeat 2014 production forecast, leading to an intraday drop of around 30%.  Some market experts point to the company’s large cash stash as a negative.  Speculation about potential acquisitions has been nothing more than speculation.  As of the most recent quarter the company had $432.9 million in total cash with not one dime in total debt.  The dividend of $0.30 per share in FY 2012 was down from $0.60 in FY 2011, which was also down from $0.70 in 2010.  Yet of the 20 analysts Thomson/First Call reports covering the stock, only 2 have Sell recommendations along with 3 Underperforms, 7 Holds, 4 Buys, and 4 Strong Buys.  Certainly a better exchange rate and the potential of improving copper and gold prices can account for some bullishness.  Another reason could be its book value per share – $7.71 (MRQ).  The stock is trading around $3 dollars.  The company’s reported assets include no goodwill and minimal other intangibles.  That alone makes OZL worth of interest.

The final stock is another copper and gold producer, PanAust Ltd (PNA), with production and exploration assets in Laos and Chile.   Unlike rival Oz Minerals, PanAust has been taking advantage of the bleak conditions in the sector by making acquisitions.  The one that should pique investor interest is the purchase of the 80% stake in the Frieda River Copper Gold Project in Papua New Guinea from Glencore Xstrata.  PanAust is to make two separate payments totaling $75 million for the rights to an exploration prospect valued at $2 billion about 18 months ago.  PNA management is confident the project will push the company into the top tier of global gold producers.  Analysts aren’t so sure, with only JP Morgan even mentioning the deal in a 04 November 2013 Overweight recommendation.  Citi is the only major brokerage firm with a Sell rating going back to 10 December 2013, offering the view the share price was a bit pricey at that time.  All other big firms – UBS, Macquarie, Deutsche Bank, Credit Suisse, CIMB Securities, JP Morgan, and BA-Merrill/Lynch have Buy, Outperform, or Overweight recommendations on PanAust.  The development of the Frieda River Project into an operating mine will take time and money, but for investors with moderate risk tolerance, it may prove worth the wait.

Company (Market Cap)

 

Code

 

Share Price

52 Wk % Change

P/E

Div. Yield

1 Year Total Shareholder Return (Avergage Annual Rate)

3 Year Total Shareholder Return (Avergage Annual Rate)

5 Year Total Shareholder Return (Avergage Annual Rate)

BC Iron Ltd

($596m)

BCI

$4.81

+32%

11.2

7.28%

46.2%

19%

73.7%

Maca Ltd

($436.4m)

MLD

$2.53

+12%

8

3.95%

1.0%

8.3%

Mount Gibson Iron

($1.06b)

MGX

$0.975

+21%

6.7

4.10%

24.6%

-19.2%

22.4%

Northern Star Resources

($377.6m)

NST

$0.89

-25%

13.3

3.93%

-17%

41.9%

126.6%

Regis Resources

($1.4b)

RRL

$2.90

-40%

9.5

5.17%

-41.7%

+16%

83.1%

 

Please note that TheBull.com.au simply publishes broker recommendations on this page. The publication of these recommendations does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.