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Summary

  • All of these companies are up at least 75% in the last 52 weeks and may be due for a correction.
  • 100%+ earnings payout ratios may require these companies to cut their dividend.
  • These companies trade for more than twice their peer’s price to earnings, book and sales ratios.

I am always on the hunt for a dividend, er, diamond in the rough like the companies I unearthed in 3 Undervalued Mining Companies Revealed but am always on guard in case I stumble across fool's gold. This article is a continuation of my previous research and identifies the 4 mining companies which appeared most often among the bottom 25% (read: overvalued compared to their peers) of companies when looking individually at:

  • percent above 52-week low;
  • dividend yield;
  • earnings payout ratio;
  • price to earnings;
  • price to sales; and
  • price to book.

METHODOLOGY

Bloomberg was used to obtain a list of companies classified as a mining company (diamonds/precious stones, diversified minerals, gold mining, metal-aluminum, metal-copper, metal-diversified, mining services, non-ferrous metals, platinum, precious metals, quarrying and silver mining), which resulted in a list of hundreds of companies currently traded on an American exchange. To quickly eliminate irrelevant companies I removed securities which had:

  • a share price less than $0.01; no 52-week high/low data; no price to earnings, price to book or price to sales data; no dividend yield; and an average trading volume of less than 10, 000 shares.

Applying these quick filters distilled the original list of hundreds of companies down to the list of 22 companies analyzed in this article. These 22 companies were compared against each other using the six metrics listed above. All metric and trading data was obtained from Yahoo! Finance.

For each metric the companies were sorted by their respective metric value from least to greatest, except for dividend yield which was sorted from greatest to least. Each company was assigned an initial point value of zero. A point was then assigned to each of the top six companies for each metric and a point was subtracted from each company in the bottom six for each metric. This means a maximum of 6 points and a minimum of -6 points was possible. The distribution of cumulative points for all six metrics can be seen below in Chart 1 and a complete list of the 22 companies analyzed is available in Table 1.

Chart 1. Cumulative Point Distribution

Table 1. The 22 mining Companies Analyzed

Symbol

Company

(NYSE:AGI)

Alamos Gold Inc.

(NYSE:BBL)

BHP Billiton plc

(NYSE:BHP)

BHP Billiton Limited

(NYSE:CCJ)

Cameco Corporation

(NYSE:CMP)

Compass Minerals International Inc.

(NYSE:FCX)

Freeport-McMoRan Copper & Gold Inc.

(NYSE:FNV)

Franco-Nevada Corporation

(NASDAQ:GOLD)

Randgold Resources Limited

(NASDAQ:GSM)

Globe Specialty Metals, Inc.

(NASDAQ:KALU)

Kaiser Aluminum Corporation

(NYSE:LXFR)

Luxfer Holdings PLC

(NYSE:MTRN)

Materion Corporation

(NYSEMKT:NSU)

Nevsun Resources Ltd.

(NASDAQ:RGLD)

Royal Gold, Inc.

(NYSE:RIO)

Rio Tinto plc

(NYSE:SBGL)

Sibanye Gold Limited

(NYSE:SCCO)

Southern Copper Corp.

(NYSE:SLCA)

U.S. Silica Holdings, Inc.

(NYSE:SLW)

Silver Wheaton Corp.

(NYSE:SSLT)

Sesa Sterlite Limited

(NYSE:TCK)

Teck Resources Limited

(NASDAQ:USLM)

United States Lime & Minerals, Inc.

METRIC 1. PERCENT ABOVE 52-WEEK LOW

Percent above 52-week low values were sorted from least to greatest. The median percent above 52-week low of all companies was approximately 38.9%, while the median percent above 52-week low of the bottom companies was approximately 123.3%. This implies the companies in Chart 2 have anywhere between 35% and 100%+ downside potential should they converge to the overall median.

Chart 2. Bottom Companies By Percent Above 52-Week Low

METRIC 2. DIVIDEND YIELD

Dividend yield values were sorted from greatest to least. The median dividend yield of all companies was approximately 2%, while the median dividend yield of the bottom companies was approximately 1%. This means the companies in Chart 3 would yield approximately $10,000 less in dividends than the median company over a ten year period assuming an initial investment of $100,000.

Chart 3. Bottom Companies By Dividend Yield

METRIC 3. EARNINGS PAYOUT RATIO

Earnings payout ratio values were sorted from least to greatest. The median earnings payout ratio of all companies was approximately 39.3%, while the median earnings payout ratio of the bottom companies was approximately 145.8%. While the overall median earnings payout ratio is well below the range where most dividend investors start to worry, the bottom companies are flirting with dangerous payout levels that generally make investors uncomfortable. In fact, five of six companies have an earnings payout ratio greater than 110% while the sixth is right around 97%. Unless these bottom companies reduce their earnings payout ratio they will likely be forced to reduce their already low dividend.

Chart 4. Bottom Companies By Earnings Payout Ratio

*FNV's earnings payout ratio of 1,000% was excluded from Chart 4 to preserve visual scale for the rest of the companies.

METRIC 4. PRICE TO EARNINGS

Price to earnings values were sorted from least to greatest. The median price to earnings of all companies was approximately 23, while the median price to earnings of the bottom companies was approximately 83.4. This means the companies in Chart 5 are approximately 3.6 times more expensive by price to earnings than the median company, which currently trades a bit above the S&P 500's 19.3 price to earnings.

Chart 5. Bottom Companies By Price To Earnings

*FNV's price to earnings of 690.1 was excluded from Chart 5 to preserve visual scale for the rest of the companies.

METRIC 5. PRICE TO SALES

Price to sales values were sorted from least to greatest. The median price to sales of all companies was approximately 2.7, while the median price to sales of the bottom companies was approximately 10.1. This means the median company is approximately 30% as expensive by price to sales than the companies in Chart 6.

Chart 6. Bottom Companies By Price To Sales

METRIC 6. PRICE TO BOOK

Price to book values were sorted from least to greatest. The median price to book of all companies was approximately 2.2, while the median price to book value of the bottom companies was approximately 4.1. This means the companies in Chart 7 are approximately 1.9 times as expensive by price to book than the median company.

Chart 7. Bottom Companies By Price To Book

CONCLUSION

Only 9 of the 22 companies managed to survive this analysis with at least one total cumulative point, meaning 14 ended with zero or fewer cumulative points. The distribution of cumulative points for all six metrics can be seen in Chart 1 above and Table 2 below.

Table 2. Cumulative Point Distribution

Points

Companies

5

1

3

2

2

3

1

3

0

3

-1

3

-2

7

-3

1

The 4 companies which cumulatively under ranked their other 18 peers are available in Table 3 below. Each of the companies in Table 3 have nearly doubled (SLCA almost tripled) in price over the last 52 weeks, have a dividend yield lower than 1.6% and all but SLCA (~35%) have around or above a 100% earnings payout ratio.

Table 3. The 4 Companies To Bury

Symbol

Company

Points

GSM

Globe Specialty Metals, Inc.

-4

RGLD

Royal Gold, Inc.

-4

SLCA

U.S. Silica Holdings, Inc.

-4

FNV

Franco-Nevada Corporation

-5

Think FNV's cash flow is its saving grace or Levi & Korsinsky, LLP's inquiry into GSM's Board of Directors breaching their fiduciary duty will tank its stock price? Comment below!

Source: 4 Mining Companies To Bury And Forget