While the mining sector is looking generally healthy these days, shares in FTSE 100 giant Glencore(LSE: GLEN) are still lowly valued compared to its peers. The shares haven't actually done too badly over the past five years of slump and recovery -- with a gain of 11%, they're somewhere between BHP Billiton's 2.5% fall and Rio Tinto's 43% gain.
Even with a decent rise in EPS of 45% forecast for this year, and predicted dividend yields standing around 5% and rising, the shares are on a lowly valuation. In fact, we're looking at a forward P/E ratio of only around 8.5, while Billiton shares command a multiple of 12.6, and Rio shares just a little lower at a bit under 12. And that's with similar predicted dividend yields too.
But Glencore is beset with problems that don't show in its bottom line or its share price valuation, as my colleague Royston Wild has explained. That includes allegations of money laundering from the US Department of Justice and possible action from the UK's Serious Fraud office over bribery allegations.
Despite that, on an operational front, the company's first-half production figures look tempting. Own-sourced copper production is up 8%, with own-sourced zinc level with last year (after accounting for a disposal), and own-sourced nickel production is up 21%. Those full-year forecasts, including that 45% EPS rise and a reinstatement of the dividend after two bare years, are looking plausible to me.
The big question is whether the low share price already factors in all of the bad news. I'm not sure it does, at least not in the short term, and I expect a rocky ride over the next couple of years. But, I do still think Glencore is a good long-term investment, especially if the dividends keep up.
We also had first-half results on Tuesday from Mexico-based Fresnillo(LSE: FRES), the world's largest producer of silver. Fresnillo shares have actually slumped by 45% over the past two years, and over five years they've been essentially flat.
For the six months to 30 June, Fresnillo recorded an 11.3% rise in adjusted revenues to $1,189.9m, with EBITDA gaining 8.5% to $502.2m. But bottom-line profit dropped 26% to $229.3m, hit by exchange rate movements and the effects of deferred taxes.
But cash generation rose by 6.6% and the firm reported a "strong balance sheet with cash and other liquid assets... of US$708.6m."
In terms of actual production, at 30.8m ounces, silver output was up 9.7%, with 465,000 ounces of gold, representing a 4.4% rise. Full-year production estimates have been upgraded, with a rise to 900,000-930,000 ounces of gold (previously 870,000-900,000 ounces) on the cards, together with a drop to 64.5m-67.5m ounces of silver (previously 67m-70m ounces).
With the shares rated on forward P/E multiples of around 20, it's hard to decide whether Fresnillo is good value right now -- even after the two-year price drop. But I can't help thinking the fall was in part due to an overvaluation caused by those seeking safety in gold and silver producers, and by some subsequent profit taking.
Although dividend yields are only around 2-2.5% and have only reached those levels after a big hike in 2016, I can see Fresnillo's payments providing a reliable long-term cash stream. And with the price down further from where it was in May, I can see why you might be tempted.
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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Fresnillo. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.