4 mining and metals stocks with upside potential

Analysts say this quartet of companies may benefit from global growth in their sectors.

By Benzinga Sep 11, 2013 4:39PM
The primary conveyor belt transports crushed rock to the first stage of the gold separation process at Newmont Mining Corp.'s Boddington Gold mine, in Boddington, Western Australia
© Carla Gottgens/Bloomberg via Getty ImagesBy Nelson Hem

Mining and metals stocks have struggled for quite some time, but Merrill Lynch analysts see upside potential in the sector based on increasing evidence of global growth.

Their top metals and mining picks include Barrick Gold (ABX), Freeport-McMoRan Copper & Gold (FCX), Kinross Gold (KGC) and Southern Copper (SCCO).

Below we take a look at how these four stocks have fared and what analysts in general expect from them.

Note that the Merrill Lynch team also singled out Allegheny Technologies (ATI), CONSOL Energy (CNX), Kaiser Aluminum (KALU) and Vale (VALE) in this research report, but their price targets were less than the consensus estimates.

Barrick Gold

This Canadian gold and copper producer sold three mines to Gold Fields (GFI) in August. Barrick Gold sports a market capitalization of more than $18 billion and offers a dividend yield near 1%. However, so far its long-term earnings per share (EPS) growth forecast is only about 2%, and the return on equity is in negative territory.

Only seven of the 26 analysts surveyed by Thomson/First Call recommend buying shares. However the price target, or where analysts expect the share price to go, is more than 17% higher than the current share price. Merrill Lynch sees more than 26% upside potential.

Shares have traded mostly between $15 and $20 since April, but they are down more than 48% year to date. Over the past six months, the stock has underperformed the S&P 500 and Newmont Mining (NEM) but outperformed AngloGold Ashanti (AU).

Freeport-McMoRan Copper & Gold

This U.S.-based mining giant reported falling but better-than-expected EPS in its most recent quarterly report. The more than $33 billion market cap company offers a 4% dividend yield. The long-term EPS growth forecast is more than 12%, and the return on equity is almost 15%.

Five of the 20 polled analysts rate the stock at Strong Buy, and another nine also recommend buying shares. The analysts see some headroom for shares, as their mean price target is more than 10%  higher than the current share price. Merrill Lynch sees more than 12% potential upside.

The share price has risen about 12%  in the past two weeks and now is down less than 10% year-to-date. The stock has underperformed the broader markets over the past six months, but it has outperformed competitors such as Newmont Mining and Southern Copper.

Kinross Gold

This Canadian company, like other gold miners, has benefited recently -- as uncertainty about the end of Fed bond buying and over the looming federal debt fight have pushed gold prices higher. Its market cap is more than $6 billion, and it plans to end its dividend. Here too the return on equity is in the red.

Ten of the 22 analysts polled recommend buying shares, and nine others recommend holding them. The analysts' mean price target is less than 23% higher than the current share price. Merrill Lynch sees marginally more upside than that. Both targets are less than the 52-week high.

The share price has climbed more than 17% from the 52-week low reached back in July. It is still down more than 45% year-to-date. Over the past six months, this stock has outperformed competitor Barrick Gold, though it has underperformed the S&P 500 and Newmont Mining.

Southern Copper

This Phoenix, Arizona-based miner and processor also saw coverage initiated Wednesday by BMO Capital at Market Perform, but with a price target less than the consensus estimate. Its market cap is almost $24 billion and its dividend yield is near 1.7%. The long-term EPS growth forecast of more than 12%.

The consensus recommendation is to hold shares, and it has been for at least three months. The mean price target indicates more than 15% potential upside. The Merrill Lynch price target is more than 21% higher than the current share price. Both targets are less than the 52-week high.

The share price is more than 27% lower than at the beginning of the year, but it appears to have bottomed in early August. Yet Southern Copper has underperformed competitor Freeport-McMoRan Copper & Gold and the broader markets over the past six months.

More from Benzinga
Sep 12, 2013 10:28AM

Barrick Gold is an excellent short NOW!


It is highly unstable in price and moves fast with the drop in gold and news.

Their Pascua Lama project is dead in the water and they are being sued

VERY SUCCESSFULLY by the natives. Their current lawsuit asks that Barrick Gold

start from scratch in evaluating the water pollution and throw out their current

water management plan and start completely over.

If they win this new lawsuit it will mean VERY Serious consequences to
Barrick - Billions.


I expect the stock to drop like a rock at that news which can come out anytime soon.

Yes, Barrick could easily drop by $5.00 in a single hour.

Sep 12, 2013 10:22AM

Barrick Gold's profits are based upon the commodity prices of Gold, Silver and Copper.


All of these commodity prices are going much, much lower as is the share price of the miners.

It is estimated that gold prices will hit bottom at $600-900 an ounce. Gold prices are likely to remain low for many years to come and trade in the 600-900 range for a decade.


Thus ABX stock price is definitely going to plunge much, much lower making new all time lows.

The cost of production of an ounce of Gold is at record highs while the price of Gold is due to fall very fast in the coming months and weeks. I estimate ABX hits a low price of below $10.00

My target price is $9.96 for ABX.

All the miners will hit similar lows.

Sep 11, 2013 6:04PM
If Barrick Gold has EPS in the $2.50 range for 2013 then it's selling at a PE of 7.4 and paying 1% dividends. That's a really good bet while you wait for dividends to go back to 4-5% and their Pascua Lama project to maybe come on line in 2016 at a gold production cost of $500 per ounce. ABX should be priced at $20-24 PS.
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