Heavy equipment specialist Finning has seen its revenue rise and fall in response to fluctuating commodity prices, largely due to lagging sales of new equipment. But higher maintenance and repair business, restructuring and renewed spending in the oil sands have the company well positioned for… Read More
Mining stocks are investments in companies that produce or explore for minerals. Some of these minerals include uranium, coal, molybdenum (which is used in steelmaking), copper, silver and gold. They are affected by fluctuating commodity prices in addition to their own business and operating risks.
While sometimes risky, mining stocks can also be strong performers when commodity prices move up. However, due to the volatility of these stocks, Pat McKeough recommends that they only form a modest part of a well-balanced portfolio.
Canadian penny mining stocks are some of the riskiest stocks you can buy. These companies are trying to find mineral deposits that mine at a profit and such a find are exceedingly rare. Because of this, it’s even more important to look for investment quality in penny mines.
For example, we automatically rule out investing in penny mines that promote themselves too aggressively or do so misleadingly. The mine-finding effort is more likely to succeed if the managers focus on finding a mine rather than hyping their stock.
Junior mining stocks are usually smaller companies that typically take on riskier mining projects. However, if a junior mining stock is successful at finding and mining, it can mean huge returns for investors.
No matter what type of mining stocks, or other stocks you invest in, TSI Network recommends following our three-part Successful Investor strategy:
– Invest mainly in well-established, mostly dividend-paying companies;
– Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities);
– Downplay or avoid stocks in the broker/media limelight.
Heavy equipment specialist Finning has seen its revenue rise and fall in response to fluctuating commodity prices, largely due to lagging sales of new equipment. But higher maintenance and repair business, restructuring and renewed spending in the oil sands have the company well positioned for gains.
FINNING INTERNATIONAL INC. (Toronto symbol FTT; www.finning.com) sells, rents and services Caterpillar-brand heavy equipment.
Western Canada (B.C., Alberta, Saskatchewan, Yukon, Northwest Territories and parts of Nunavut) supplied 50% of the company’s revenue in 2016. South America (Argentina, Chile, Uruguay and Bolivia) contributed 33%, while the U.K. and Ireland provided 17%.
Finning mainly sells its products to cyclical companies in the oil, mining and construction industries. As a result, its revenue and earnings fluctuate with the prices for those underlying commodities.
The company’s revenue rose 4.5%, from $6.6 billion in 2012 to $6.9 billion in 2014. Due to lower oil and metal prices, revenue declined to $6.2 billion in 2015, and fell again to $5.6 billion in 2016.
Earnings dropped from $1.96 a share (or a total of $337.6 million) in 2012 to $1.84 a share (or $318.2 million) in 2014.
In response to weaker commodity prices, Finning consolidated facilities and cut jobs. As a result of related costs, it lost $0.94 a share (or $161.0 million) in 2015. Earnings then recovered to $0.38 a share (or $65.0 million) in 2016. If you exclude all unusual items, earnings fell 31.8% on reduced revenue, from $1.29 a share in 2015 to $0.88 in 2016.
For the three months ended March 31, 2017, the company’s revenue fell 6.2%, to $1.5 billion from $1.4 billion a year earlier. Finning now gets 60% of its total revenue from maintenance and repair services. That revenue rose 3.9% in the quarter. However, sales of new equipment fell 17.9% from a year earlier.
Thanks to savings from the company’s restructuring, earnings in the quarter jumped to $0.28 a share (or a total of $47.0 million) from $0.09 a share (or $15.0 million).
Mining stocks: digging for value
The right mining stocks make a valuable contribution to your investments whether commodity prices are up or down. Pat McKeough tells you how to find deep value in mining stocks—and gives you the outlook on gold, copper, uranium, and the remarkable story of Canadian diamonds.
Mining Stocks: Dividends equal just 33% of free cash flow
Finning has benefitted as Canadian oil sands producers begin to spend more on maintenance and new projects. As a result, the order backlog for its Canadian operations rose to $700 million as of March 31, 2017, from $500 million three months earlier.
The company’s balance sheet remains sound. Finning ended the first quarter with cash of $489 million, or $2.91 a share. Its long-term debt was $1.5 billion, or a somewhat high 34% of its market cap. However, the company plans to reduce that debt by $350 million before 2018.
Dividend looks safe Finning continues to pay quarterly dividends of $0.1825 a share for an annualized yield of 2.7%.
Dividends equalled just 33% of the company’s 2016 free cash flow (cash flow less capital expenditures), so the current rate seems sustainable. Finning also plans to buy back up to 3.0% of its outstanding shares by May 10, 2018.
The company’s earnings should improve to $1.20 a share for 2017. The stock trades at 22.5 times that forecast.
Recommendation in The Successful Investor: BUY
For our recent report on a Canadian gold stock we rate as a buy, read This miner has speculative appeal.
For our view on the best way to invest in gold, read 7 ways to pick the best gold stocks.
Mining Stocks Post Archives
There are many ways to invest in gold. But we think the best gold stocks are your safest bet.
We recommend that gold investments only make up a limited portion of your portfolio’s resources segment.
However, if you want to hold gold shares, then here are some… Read More
This leading miner saw its cash flow jump in the latest quarter despite falling silver production and only marginal increases in its gold output.
HECLA MINING COMPANY (New York symbol HL; www.hecla-mining.com) explores for, mines and processes silver and gold in the U.S., Canada and Mexico.
Most… Read More
Agrium is set to see its earnings rebound this year on stronger prices and regulatory approval for its planned merger with a chief competitor.
Under the terms of the upcoming merger of Potash Corp. and Agrium, POT investors will receive 0.40 of a share in… Read More
The best Canadian mining companies are well-financed with low debt and good management
The best way to invest in Canadian mining companies is through high-quality mining stocks as part of the Resource sector of your portfolio.
Mining stocks are affected by fluctuating commodity prices in addition… Read More
Potash Corp. expects global production cuts and more-stable commodity prices to raise its profit in 2017—ahead of its planned merger.
Under the terms of the upcoming merger of Potash Corp. and Agrium, POT investors will receive 0.40 of a share in the combined company for… Read More
Here’s one Canadian diamond stock for aggressive investors.
Diamonds are a transparent form of pure carbon, and their dense crystal structure makes them the hardest substance known.
Aside from jewelry, they’re widely used for machining plastic, glass and metal. Diamonds’ resistance to wear makes them essential for… Read More
Gold company stocks are a better investment than many gold investors realize
All investments come with a mix of risk and potential reward. The greatest danger comes when you understand the mechanics of an investment, but you’re missing some of the details. Your understanding of the… Read More
Both revenue and cash flow have fallen for this drilling contractor, but it should benefit as miners try to access increasingly remote deposits of ore, oil and gas.
MAJOR DRILLING (Toronto symbol MDI; www.majordrilling.com; No dividends paid) is a large contract driller that mainly serves… Read More
The gold, silver, copper and zinc miner significantly increased its output in the latest quarter—a move that’s lifted revenue as well as cash flow.
HUDBAY MINERALS INC. (symbol HBM on Toronto; www.hudbayminerals.com) produces base and precious metals including copper, zinc, gold and silver.
The company first… Read More
Silver investing can be profitable if you follow our advice for selecting the best mining stocks and ETFs
Silver investing gains popularity when gold prices rise, but do you know how to invest in these stocks properly?
Silver attracts a lot of interest as gold prices reach levels that seem too expensive for the average investor. Silver is sometimes known as “poor man’s gold”… Read More
Pat McKeough recently replied to an Inner Circlememberlooking for an opinion on this mining stock. The company aims to mine one of Alaska’s largest copper/gold deposits, says Pat. But it faces opposition.
Q: Hi Pat. I am considering Northern Dynasty Minerals (NDM) for the aggressive part… Read More
The miner expects to significantly increase its spending on a new mine to boost its output and strengthen its cash flow.
NEW GOLD (Toronto symbol NGD; www.newgold.com; no dividends paid) has four mines: the Mesquite project in the U.S.; Cerro San Pedro in Mexico; the… Read More
The best Canadian gold companies will generate positive cash flow even with low gold prices
Most Canadian gold companies’ shares will continue to be heavily influenced by the direction of gold prices. Meanwhile, though, the best gold stocks will generate positive cash flow even with low… Read More
The gold producer saw its cash flow soar in the latest quarter on higher output at its mines but also rising prices for the precious metal.
YAMANA GOLD (Toronto symbol YRI; www.yamana.com) owns and operates six gold mines in Canada, Mexico, Brazil, Chile and Argentina… Read More
Junior mining stocks have strong profit potential—but they also have risk to match
Mining companies can generally be broken down into two categories, majors and juniors. Majors are typically mining companies that have been in the mining business for many years, and more often than not… Read More
The miner’s cash flow could nearly double in 2017 on stronger prices for metallurgic coal but also zine and copper.
TECK RESOURCES LTD. (Toronto symbol TECK.B; www.teck.com) is a leading producer of metallurgical coal, a key ingredient in steel making. It also produces copper and zinc.
The… Read More
The gold miner’s cash flow has soared as gold prices rise and it prepares for full production at its new operation.
ALAMOS GOLD (Toronto symbol AGI; www.alamosgold.com) owns the Mulatos and El Chanate mines in Mexico, and the Young-Davidson mine in northern Ontario. That Canadian… Read More
Before we discuss ways you might put gold in your RRSP in 2017 (despite last year’s volatility), let’s look more closely at those price fluctuations. In 2011, gold shot up to a high of $1,950 U.S. an ounce. Gold prices have fallen since then, and… Read More