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.

Finning International Inc

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; 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.

Read this FREE report >>

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.

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