Mining Stocks

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.

Potash Corp

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 each share they hold; Agrium investors will receive 2.23 shares for each of their AGU shares. As a group, Potash Corp. shareholders will then own 52% of the firm, with Agrium investors holding 48%.

The new company will pay an annual dividend equal to Agrium’s current rate of $3.50 U.S. a share. That’s a big jump over Potash Corp.’s current dividend of $0.40 U.S. The elimination of overlapping operations will let the combined firm cut $500 million U.S. from its annual costs.

Regulators in several countries still need to approve the merger. However, the companies still expect to complete the transaction in mid-2017. Until then, their shares will continue to trade in a narrow range.

POTASH CORP. OF SASKATCHEWAN (Toronto symbol POT; operates five potash mines in Saskatchewan that account for 20% of global capacity. It also makes fertilizers from nitrogen and phosphate.

Mining Stocks: Production falls in 2016

In 2016, the company’s potash volumes fell 1.5%. However, its average selling price dropped 39.9%. As a result overall sales fell 29.0% in 2016, to $4.5 billion from $6.3 billion in 2015 (all amounts except share price and market cap in U.S. dollars). Earnings dropped 73.7%, to $0.40 a share (or a total of $336 million) from $1.52 a share (or $1.3 billion).

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Production cuts by Potash Corp. and other firms have helped stabilize potash prices. As a result, the company’s earnings in 2017 should rebound to $0.70 a share. The stock trades at 23.6 times that forecast.

After reducing its dividend twice in 2016, Potash Corp.’s current quarterly dividend of US$0.40 a share yields 2.4%.

Recommendation in The Successful Investor: HOLD

For our recent report on a leading service stock in the Canadian mining industry, read Major Drilling ready for a resource rebound.

For our view on the risks and rewards of junior mining stocks, read What you need to know to invest profitably in junior mining stocks.

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