4.9% Yielding Copper Mining Company
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Governments around the globe are making desperate efforts to kick start the global growth engine back up again. Stimulus packages were announced in the US, Japan, and China. India which was once counted amongst the miracle nations has also set things in motion by cutting interest rates, allowing FDI in retail and various proposals in the pipeline like the introduction of GAAR and reduction of CRR. In addition to these packages another round of QE is set in motion, which could be a big game changer for most of the industries. It’s a fact well known to all that, it is the health of the top ten economies that decides where the prices of the industrial metals is headed and the countries that we mentioned all belong to the top ten list.
Copper is one such industrial metal, which has a direct correlation to the health of the major global economies. Investors who wish to stay away from the volatility of the pricing of the commodity have an option to invest in the copper producer Southern Copper Corporation (NYSE: SCCO). The company is a pure play copper producer, and its performance is directly correlated to the quarterly performance of copper prices. The company is one of the largest copper mining companies in the world, and in addition to it, the firm is one of the top molybdenum, silver and zinc producers as well.
The company was under pressure during the first half of this year, mainly due to the inflationary pressures, and falling prices of copper. A fact to be noted here is that the supply of copper remained under pressure in 2011 due to numerous reasons like falling copper grades, and little has changed since then. The weak demand of the commodity has forced the prices down. Analysts believe that with growing demand of developing countries along with the stimulus packages and reforms around the globe, the second half of 2012 will see an upside in the prices of copper.
Southern Copper Corporation looks well placed in the industry with 7% increase in its copper sales in the first half of 2012. The company in the recent quarter was able to reduce its cost of mining one pound of copper from $1.82 to $1.71. It is due to this reason the operating expenses in the recent quarter stood at $784 million, which shrank by more than 6% compared to the first quarter of 2012. The management of the company with a positive outlook aims to increase the production of copper from 654,000 tons in 2012 to 1.6 million tons in 2016, which is a mammoth 2.44x increase.
The competitors of Southern Copper Corporation include BHP Billiton (NYSE: BHP), Freeport-McMoRan (NYSE: FCX) and Newmont Mining (NYSE: NEM). Let’s take a look at the financial metrics of the companies.
|
Company |
P/E |
Dividend Yield |
Net Profit Margin |
ROI |
|
Southern Copper |
12.1x |
4.9% |
34.4% |
32.3% |
|
BHP Billiton |
12.1x |
3.2% |
21.5% |
16.5% |
|
Freeport-McMoRan |
12.2x |
3.1% |
22% |
15.5% |
|
Newmont Mining |
98.8x |
2.5% |
8.1% |
3.7% |
It’s not hard to conclude that all the stocks except for Newmont Mining are undervalued. Southern Copper Corp beats the peers in the race for the highest net profit margins and returns on investments. The icing on the cake is the healthy 4.9% yield, which makes the investment option all the more lucrative.
If numbers weren’t enough, a comparison of the stock performance of all the companies shows that Southern Copper has clearly outperformed its peers YTD.
Copper now has all the macroeconomic ingredients to turn itself around, and Southern Copper Company with its good financials and fundamentals looks well poised to take advantage of the growth opportunities presented by the industry. It is due to all the mentioned compelling reasons that we believe that the stock has nice headroom to grow. We have a Foolish buy rating for the stock.
PiyushArora has no positions in the stocks mentioned above. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
