Precious metals prices have gotten hammered over the past several months, and not surprisingly, have brought down the publicly traded miners in tandem.
Copper, gold, and silver are at significantly reduced prices as compared to levels seen a year ago, due to the improving economy and the threat of higher interest rates. Often seen as a ‘fear’ trade, precious metals tend to rise in times of economic uncertainty.
As a result, miners including Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Southern Copper Corp (NYSE:SCCO), and Rio Tinto plc (ADR) (NYSE:RIO) have taken a beating over the past several weeks. Are they now attractive stocks to buy?
Enough pain to go around
The global sell-off in precious metals has resulted in depressed profits, and consequently share prices, of these large mining stocks.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) traded as high as $42 per share as recently as October 2012, only to fall to its current level of $31 per share. That means that in just 11months, the stock has lost more than a quarter of its value. Looking further back, the chart is even uglier: Freeport traded above $60 per share at the beginning of 2011.
That being said, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s underlying performance hasn’t been as dire as some might fear. Total revenue and operating cash flow declined just 2% and 6%, respectively, during the first half of the year.
Moreover, the company is committed to a concentrated effort to ramp up production. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX)’s $19 billion acquisitions of Plains Exploration and McMoRan Exploration, now completed, are designed to further this strategic priority going forward.
Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) isn’t the only miner in the copper and gold business getting crushed. Gold has lost several hundred dollars per ounce from its recent highs, and copper has dropped to levels not seen in years. That means pain for miners all across the board.
Southern Copper Corp (NYSE:SCCO) engages in mining, exploring, producing, smelting, and refining copper and other minerals in Peru, Mexico, and Chile. Southern Copper Corp (NYSE:SCCO) has lost about 25% of its value year-to-date, while the S&P 500 Index has notched nearly 15% gains in that time frame.
For its part, Southern Copper Corp (NYSE:SCCO)’s first half revenue fell 12.5% year over year. While certainly not good, its results signify a company struggling during a slow-down rather than a more significant business deterioration.
While Rio Tinto plc (ADR) (NYSE:RIO) has considerable copper and gold exposure, it operates a more diversified mining business. Based in London, the company’s reach extends to additional mineral resources such as aluminum, silver, diamonds, coal, and iron ore.
This has allowed Rio Tinto plc (ADR) (NYSE:RIO) to navigate this tough operating environment admirably. The company’s cash flow from operations actually rose 1% during the first half of the year, which signifies Rio Tinto plc (ADR) (NYSE:RIO)’s ability to effectively manage production and costs.
Rio Tinto plc (ADR) (NYSE:RIO) traded for $73 per share as recently as the beginning of 2011, and now exchanges hands for just $43 per share.
Miners are now surprising income plays
Global precious metal producers are counted on for growth much more than income from the investing community. However, as a result of their stock prices getting crushed over the past couple years, certain miners offer surprisingly high dividend yields.
Since prices and yields are inversely related, Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Rio Tinto in particular sport nearly 4% yields. While it’s true that interest rates have climbed lately, 4% dividend yields remain attractive, considering the 10-Year Treasury Bond is still at just 2.8%.
A 4% yield can effectively blunt the impact of a volatile stock price, as well as provide meaningful downside protection should precious metals plummet further.
A Foolish opportunity among mining stocks?
Prices of precious metals are hard to predict and often swing wildly. As a result, investors may very well experience continued volatility from miners like these three. However, if you can put aside the psychological distress of volatility, there’s a long-term buy-and-hold case to be made for well-run mining powerhouses like Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Southern Copper Corp (NYSE:SCCO), and Rio Tinto plc (ADR) (NYSE:RIO).
Companies engaged in precious metals are often best to buy when global commodity prices are in prolonged downtrends. If you believe gold and copper prices are near a bottom, you’re being offered bargain-bin prices. Moreover, should volatility continue, you’re at least being paid handsomely to wait for the turnaround in precious metals. As a result, long-term, patient investors should consider these mining giants at today’s rock-bottom prices.
The article Can You Unearth Gains From These Stocks? originally appeared on Fool.com and is written by Robert Ciura.
Robert Ciura has no position in any stocks mentioned. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold.
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