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Vale SA (ADR) (VALE), Freeport-McMoRan Copper & Gold Inc. (FCX): Proven Profits in Tough Times, Explosive Gains to Come

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The mining industry can be a risky place to invest, since it is prone to great volatility and tremendous boom and bust cycles. However, those investors who select businesses that can maintain profitability in tough conditions can make a fortune when commodity markets strengthen. By selecting strong businesses whose shares have been punished alongside their weaker counterparts yet continue to pay solid dividends, prudent investors can not only enjoy the fabulous upside potential that exists in the mining sector, but also get paid handsomely while they wait for prices to increase.

Fortunately, investors today don’t have to dig deep to find opportunities for great income and future capital gains. They just have to take a look at the beaten down shares of some of the world’s best mining companies with proven assets and track records of profitable performance.

High yield/low priced base metals

While gold and silver miners tend to get a great deal of exposure in the media, the world economy can’t function without the production of the much less glamorous base metals: iron ore, manganese, nickel copper aluminum and ferroalloys. In addition to those, the world needs potash phosphate and nitrogen to provide the fertilizer required to produce healthy, high-yield agricultural products necessary maintain our food supply.


Brazil-based Vale SA (ADR) (NYSE:VALE) provides all of these products to their customers and can also help with the logistic services required to get them delivered. Even though the global economy has experienced several tough years, Vale SA (ADR) (NYSE:VALE) has rewarded shareholders with a dividend that has grown at an annualized rate of 24.23% over the past five years–yet it is valued at only 6.75 times this year’s projected earnings and only 7.5 times cash flow.

While the past and current valuation metrics are favorable for Vale SA (ADR) (NYSE:VALE), investing is about how a business is projected to perform in the future: analysts’ consensus earnings growth rate for the next five years is 21.7%, which is huge when you consider the current P/E of 6.75. In addition to that surprisingly low valuation to growth, the business has delivered an average 21.8% return on equity to shareholders for the last 5 years as well. With net margins holding a five-year average of 28.7%, this is a profitable, growing business with a low valuation and exceptional prospects, supplying the world with products it must have. While shareholders wait for the capital gains that will come from a rising stock price, which will be driven by higher prices for base metals and fertilizers needed for commercial and agricultural use, they will be rewarded with a very generous dividend of 5.65%.

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