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Financial Adviser: 5 Most Profitable Mining Stocks to Buy this 2021 and How to Profit from Them

Expect commodities such as copper, nickel and gold to rise this year as economies recover from the pandemic.
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A wave of global stimulus packages is expected to boost investment and spending this year, which will increase demand for commodities as raw materials from oil to copper.

A weakening US dollar and rising inflation expectations are also driving demand for gold. A weaker dollar makes the relative price of gold cheaper, while a drop in purchasing power increases the value of gold as a hedge against inflation.

Meanwhile, the global price for copper has been rising steadily last year, gaining as much as 81 percent from a low of $2.05 per pound during the pandemic to end the year at $3.72 per pound.

Nickel also mirrored the same trend by rising 53.8 percent to end the year at $17,003 per ton from a low of $11,055 per ton in March last year.

Gold, on the other hand, has been going up as early as 2018 but only accelerated during the height of the coronavirus crisis. Gold peaked at price of $2,063 per ounce last August and has since corrected to $1,829 per ounce.

Over at the Philippine Stock Exchange (PSE), the Mining and Oil Index has been the best performing index last year, having recovered by 165 percent from a low of 3,591 in March to a high of 9,528 by year-end.

With global economies recovering from the crisis this year, commodities such as copper, nickel and gold are expected to rise further this year.

There are plenty of mining companies that are listed at the PSE, but only few have solid earnings track record to speak of. Buying a mining stock can be speculative, but you can lower the risks by focusing on the fundamentals.

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Here are the five most profitable mining companies that could benefit from the coming commodities boom and how you can profit from them:

1| Philex Mining Corp

Philex Mining Corporation (PSE: PX) is one of the oldest and largest mining companies in the country with interests in large-scale exploration and development of mineral resources.

PX has been operating Padcal Mine in Benguet for the last 62 years, which produces copper concentrates, gold, and silver.

PX also owns Bulawn Mine in Negros Occidental through its subsidiary, Philex Gold Philippines, which has residual resource estimates of 29.6 million tonnes containing 1.7 million ounces of gold.

Weak gold prices in the past 10 years have resulted to declining revenues for PX from P12.6 billion in 2010 to P6.8 billion in 2019.

PX’s falling revenues, which is composed of 53 percent gold and 45.6 percent silver, have caused its net income to fall from P3.9 billion in 2010 to a net loss of P647 million in 2019.

Last year, with the recovery in gold and copper prices, PX’s revenues for the first nine months of 2020 increased by 19 percent to P6.3 billion from P5.3 billion in 2019.

The increase in revenues coupled with more efficient production boosted PX’s nine-month operating income to P1.1 billion from only P57 million in 2019.

Accounting for other non-operating income and charges, PX’s net income doubled to P1.2 billion as September last year from P492 million in the previous year.

If we annualize this PX’s revenues for 2020, the company should achieve net income of P1.3 billion on the back of estimated revenues of P8.2 billion.

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Given the historical performance of PX in the past, where its annual operating revenues averaged at about P10 billion per year during its peak, the company should be able to further recover this year.  

At earnings growth of 25 percent this year, assuming higher production and stronger gold prices, PX will only be trading at 14.7 Price-to-Earnings (PE) ratio, which represents only half of its historical average PE ratio of 30 times.

By reference, the share price of PX has fallen by 93.6 percent from its all-time high of P28.95 per share in 2011 to as low as P1.85 per share last year. The stock has just started its road to recovery at P4.88 per share to date.

2| Apex Mining Company

Apex Mining Company (PSE: APX) is primarily a gold-producing company, with a bulk of its revenues, about 94 percent, coming from gold.

APX currently operates the Maco Mines in Maco, Davao de Oro, which covers more than 2,200 hectares. APX also owns four patented mineral claims, through its subsidiary, Itogon and Suyoc Mines, covering the Sangilo and Suyoc Mines in Benguet.

APX has also interests in gold mines overseas, such as in Mongolia, Uganda and Myanmar, through its subsidiary, Monte Oro Resources and Energy.

APX’s revenues has been growing by an average of 20 percent annually since 2015 from P2.4 billion to P4.9 billion in 2019. This steady increase in revenues resulted to 41-percent yearly increase in net income from P78 million in 2015 to P306 million in 2019.

Last year, APX’s nine-month revenues increased by 27 percent to P4.6 billion from P3.4 billion in 2019, which translated to net income of P991 million, or more than four times its net income of P227 million in 2019, due to higher gross margins and lower operating expenses.

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APX should achieve total revenues of P6.3 billion by year end, making it the largest gold producer in the country with a net income of P1.35 billion.

At this estimated 2020 earnings, APX’s PE ratio is only 8.7 times, which is roughly half of PX’s PE valuation.

Moreover, if we account for the 25-percent growth in net income this year for APX, given the strong gold prices, the stock’s prospective PE ratio will only be 6.9 times.

Similar to PX, APX’s share price has been declining in the past 10 years due to weak gold prices. The stock has fallen by as much as 90.8 percent from its historical high of P6.20 to a low of P0.57 per share during the pandemic.

With the recovery in gold prices, given PE ratio of at least 15 times, APX’s share price could easily double this year.

3| Nickel Asia Corporation

Nickel Asia (PSE: NIKL) is the largest producer of lateritic nickel ore in the Philippines, and one of the largest nickel companies in the world. It also has a growing interest in renewable energy development.

NIKL operates four major mines: Rio Tuba in Bataraza, Palawan, which has a capacity of 24,000 tonnes of contained nickel; Taganito in Surigao del Norte, which has 36,000 tonnes capacity; Hinatuan in Surigao del Norte; and Cagdianao in Dinagat Islands.

The company is also into renewable energy business through its 86.3 percent subsidiary, Emerging Power, Inc., which operates a 32 MW solar plant in Subic Bay freeport that it plans to increase to 100 MW in 2021, as well as geothermal service contracts in Mindoro and Biliran.

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NIKL’s revenues, 92 percent of which come from ore and limestone sales, have been growing by an average of 14 percent for the past 10 years from P4.7 billion in 2009 to P17.9 billion in 2019.

This growth in revenue has resulted in 24 percent annual growth in net income from P303 million in 2009 to P2.7 billion in 2019.

Last year, NIKL’s nine-month revenues grew by 10.5 percent to P15 billion from P13.6 billion in 2019, which translated to a net income of P2.3 billion, or 19 percent higher than P1.9 billion in the previous year.

Based on a 12-month trailing earnings, NIKL’s PE ratio stands at 25 times. NIKL’s high PE pricing reflects the company’s strong balance sheet and solid earnings track record.

4| Global Ferronickel Holdings

Global Ferronickel Holdings (PSE: FNI), through its wholly owned subsidiary Platinum Group Metals Corporation (PGMC), is one of the world’s largest suppliers of nickel ore.

It is also the country’s third largest nickel ore producer by volume of nickel shipped and second largest by value of shipment.

Total revenues of FNI have been falling from P9 billion in 2014 to P3.8 billion in 2016 due to weak nickel prices. The fall substantially cut down its net income from P4.8 billion in 2014 to only P37.5 million in 2016.

But in 2017, as global prices of nickel started to recover, FNI’s revenues improved by 54 percent to P5.8 billion, which increased its net income to P779 million.

In 2019, FNI’s total revenues further increased to P6.6 billion with net income of P1.3 billion.

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Last year, FNI’s nine-month revenues grew by 16 percent, which enabled its net income to grow by 92 percent to P1.56 billion from P812 million in 2019, due to higher nickel prices.

Based on a 12-month trailing earnings, FNI’s Price-to-Earnings (PE) ratio is only 7.6 times.

If we price FNI’s PE pricing at only 50 percent of NIKL, which is 12 times PE, FNI’s share price should reach at least P4.64 per share.

5| Semirara Mining and Power Corporation

Semirara Mining and Power Corporation (PSE: SCC) is the largest coal producer in the Philippines, and the only power producer in the country that owns and mines its own fuel source (coal).

SCC operate the largest and most modern pit mine in the Philippines with operating capacity of 16 million metric tons of coal per year. SCC also installed generating capacity of 900 MW, with an additional 1,200 MW in the pipeline.

SCC’s revenues, which is comprised of 65 percent coal sales and 35 percent power revenues, have been growing by an average of eight percent per year since 2010, from P22.8 billion to P44.2 billion in 2019.

This increase in revenues has resulted to annual growth of 10 percent in net income—from P3.9 billion in 2010 to P9.6 billion in 2019.

Last year, due to lower sales volume and coal import quota in China, SCC’s nine-month revenues fell by 42 percent to P19.8 billion from P34 billion in 2019.

The fall in revenues wiped out 64 percent of its net income of P8.2 billion in 2019 to only P2.9 billion.

Since coal prices began to weaken, SCC’s stock has lost 83 percent of its value from P50 per share in 2017 to a low of P8.30 last year. The stock has since recovered slowly to P13.64 per share this year.

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Given the recovery in the economy, sales volume of coal and power at a more stable prices should enable SCC to regain its sales and earnings this year.

Henry Ong, RFP, is president of Business Sense Financial Advisors. Email Henry for business advice [email protected] or follow him on Twitter @henryong888 

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