Why these 2 miners could be next year's big winners

Updated: 
Copper mine

It's been a good day for investors in mining giants Rio Tinto(LSE: RIO) and Antofagasta Holdings(LSE: ANTO), with the stocks up nearly 6% and 4% respectively today. In fact, this has been a good year, with their share prices up roughly 45% over the past 12 months. That's quite a turnaround given last year's commodity sector collapse and near rout in January.

Squeak, squeak

Whenever stock markets crash we at the Fool urge readers to defy what Sir Alex Ferguson called "squeaky bum time" by rushing out to load up on shares at their reduced valuations. Anybody who followed our advice and bought the miners at the start of this year will be sitting on juicy gains. But should you buy them today?

The impressive thing about the commodity stock rally is its staying power. Rio Tinto and Antofagasta are up 10% and 36% in the past month alone. But you have to question how long this can continue with both now trading at pretty meaty valuations. Rio Tinto, for example, currently trades at a forecast 16.2 times earnings, so is no longer a recovery play. The hope is that President-elect Trump's planned reflation strategy will keep sentiment and industrial metal prices high.

Rio for me-o

2017 looks promising for Rio, with profits forecast to jump almost 16% from £4.7bn to more than £5.4bn. Earnings per share (EPS) are forecast to rise 19% after three negative years (including a 51% drop in 2015). The company's dividend is now forecast to yield just 3.2% but healthily covered twice and with hopes of further progression.

Rio Tinto's bottom line should benefit both from rising revenues and a new productivity campaign, which aims to boost cash flow by $5bn over the next five years, on top of next year's $2bn cost-cutting target. Credit Suisse has come out as a Rio bull, saying it will benefit from vanishing iron ore surpluses as steel production rises and supply growth declines, and praising its balance sheet strength. 

Copper whopper

I took a double take at Chile-focused copper miner Antofagasta's crazy current valuation of 1,536.5 times earnings (I hope they're right about the .5 at the end). That's down to 2015's collapse in earnings, from $1.5bn to just £259m. However, an even more incredible 3,907% rise in forecast EPS next year should restore some sense, trimming it to 38.5 times earnings. Future revenues and earnings look set to be much more stable.

The company's copper production jumped 8.7% in the third quarter and gold production is also up, while management has made good progress in driving down net cash costs. Antofagasta has enjoyed a big lift from the recent surge in the copper price, although it has lost some of its shine in recent days, falling below $5,800 a tonne, after nudging $6,000 at one point. 

Rio Tinto and Antofagasta are unlikely to enjoy a repeat of this year's blistering share price growth but providing the global economy holds up, they seem well-placed to make further strong gains, especially the well-diversified and financially strong Rio Tinto.

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Harvey Jones has no position in any shares mentioned. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.