Those of us looking to diversify into a company that mine a myriad of metals have some excellent opportunities available at the moment. Two of the worlds largest mining companies, as well Earth’s biggest steel producer, are trading at levels less than 5% off of their 52 week highs. That alone does not qualify them as attractive investments. But when enterprises of this size trade near 52 week lows, it is wise to pay attention.
Odds are that companies with a market cap in the $10 billion dollar-plus range are not flashes in the pan–in most cases companies of such massive size got that way by conducting business in top notch fashion. Inevitably high market cap companies will be knocked down to their 52 week lows. This occurrence can be a curse to the investor who rode the stock all the way down and now sells out in frustration. But at the same time it can be a boon to the individual investor with enough courage to invest.
World’s largest steel company for sale
ArcelorMittal (ADR) (NYSE:MT) is an integrated mining company perhaps best known as the world’s largest producer of steel. As this article is being written ArcelorMittal (ADR) (NYSE:MT) is trading at a level 3.4% above its 52-week high.
Looking at its balance sheet you will learn that ArcelorMittal (ADR) (NYSE:MT) has working capital of approximately $12.6 billion dollars. This company has over two-thirds of its current market cap in working capital value, a ratio any investor should love. Equity is trending in the wrong direction, but right now you still would receive $49.5 billion dollars of equity for a price of $18 billion.
ArcelorMittal (ADR) (NYSE:MT)’s operating cash flow during the year 2012 was $5.294 billion dollars. The annual averages for the periods 2006-2009 and 2010-2012 were $11.5 billion and $3.7 billion, respectively. I admit ArcelorMittal (ADR) (NYSE:MT) has been falling off a bit in terms of operating cash flow–but the company has still managed to generate, over the past three years, average annual operating cash flow equal to over 20% of their current market cap.
Bargain hunter priced, Billiton
If you’re looking for a mining company to invest in, the first place most people might think to look would be BHP Billiton Limited (ADR) (NYSE:BHP). As this article is being written, BHP Billiton Limited (ADR) (NYSE:BHP) trades at a level 1.55% above its 52-week low. By far the largest mining company in the world, BHP Billiton Limited (ADR) (NYSE:BHP) is valued at $157.5 billion.
Working capital is negative here, which is never an awesome sign, but shouldn’t necessarily always be taken as a warning to stay away either. Management has been growing shareholder equity at an impressive clip. Although the equity/market cap ratio of 41.8% is certainly less impressive than ArcelorMittal (ADR) (NYSE:MT)’s ratio of 275%, it is still not too shabby.
The statement of cash flows from BHP Billiton Limited (ADR) (NYSE:BHP) tells a wonderful tale, a tale of a cash-generating monster growing by the minute. In 2012 BHP’s net operating cash flows were $24.384 billion, or 15.5% of market cap. Its average net operating cash flow for the years 2006-2009 was approximately $16 billion. For the years 2010-2012 that number was approximately $23.8 billion. Now that is some cash generating ability that isn’t priced too expensively! On top of that BHP Billiton Limited (ADR) (NYSE:BHP)’s dividend yields 3.9%.
We could all use a little RIO
Rounding off this list of massive miners currently available on the cheap is Rio Tinto plc (ADR) (NYSE:RIO). Current price levels give Rio Tinto plc (ADR) (NYSE:RIO) a dividend that, at 4%, even has a slight edge over BHP Biliton. Rio is currently being offered by the market for $58.7 billion, where should we look first to see if that price is to the advantage of us the individual buyer of securities? If you said the balance sheet, then we think alike.
Working capital sits at approximately 9.2% of market cap, in this case $5.402 billion dollars. Management has been levering up lately which, in the short term at least, will always do some damage to stockholder equity. The value of the equity of shareholders of Rio Tinto stands at $46.865 billion. One other positive takeaway I received from Rio Tinto plc (ADR) (NYSE:RIO)’s balance sheet was the direction that the number of shares outstanding was trending in. Management at Rio Tinto has done well in seeing that the number of shares their company has outstanding is not excessive.
In terms of cash generation Rio Tinto plc (ADR) (NYSE:RIO) is a beast, although not on quite the same level as BHP. Operating cash flow in 2012 was $9.368 billion dollars for Rio Tinto plc (ADR) (NYSE:RIO). It has managed to average $14.22 billion dollars in annual operating cash flow during the past 4 years. Those are fairly high amounts of cash generating power to receive for the price of $58.7 billion.
Final Foolish Thoughts
Here we have three shining examples of metallic magnificence. While neither of them are anywhere near being the perfect business, they all have their problems, right now the market is offering them for cheap. Relative to working capital and shareholders equity they are all fairly cheap, with ArcelorMittal (ADR) (NYSE:MT) being the standout there. Rio Tinto plc (ADR) (NYSE:RIO) has the highest dividend yield, presently at 4%. Last but not least, when it comes to margins and pure cash generating power, BHP Billiton Limited (ADR) (NYSE:BHP) is head and shoulders above the rest. I’m torn on which to choose, as they are all so cheaply priced. But it seems to me that the highest quality company here is, without a doubt, BHP Billiton.
The article Massive Miners, Bargain Prices originally appeared on Fool.com and is written by Ryan Palmer.
Ryan Palmer has no position in any stocks mentioned. The Motley Fool owns shares of ArcelorMittal. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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