The mining sector has endured one of the toughest years in living memory, with commodity prices tumbling, profitability coming under pressure, and share prices heading south – fast. Clearly, many investors will be rather hesitant to buy a slice of any mining company at the moment, which is understandable when the outlook for commodities such as iron ore remains so uncertain.
However, this could be the perfect moment to buy shares in high quality mining stocks. That's because, as well as offering relatively low valuations, the stronger companies within the sector could strengthen further relative to their weaker peers, thereby leaving them in an improved position in the long run.
With that in mind, here are three mining stocks that I think could be worth buying at the present time.
Rio Tinto Limited
2015 is set to be an awful year for Rio Tinto Limited's (ASX: RIO) bottom line, with the iron ore producer's earnings due to fall from $6.19 per share last year to just $3.52 this year. Clearly, that's as a result of a fall in the price of iron ore to a ten-year low but things are set to pick up strongly for Rio Tinto.
In fact, Rio Tinto's earnings are expected to rise by 10.8% next year and, better still for investors in the company, this rate of growth does not appear to be fully priced in to the share price. For example, Rio Tinto trades on a price to earnings (P/E) ratio of 16.5 using 2015's forecast earnings, which is less than the ASX's P/E ratio of 17.1. With a market-beating growth rate pencilled in for next year, Rio Tinto could turn the tables on its recent underperformance of the ASX that has seen its share price tumble by 10% in just three months.
BHP Billiton Limited
While earnings are also down at BHP Billiton Limited (ASX: BHP), the diversified mining company has an excellent track record of earnings growth. For example, in the last 10 years it has increased its bottom line at an annualised rate of 8.5%, which should provide investors in the company with a degree of confidence regarding its future strategy and the scope for increasing profitability.
In addition, the decision to spin-off BHP's non-core assets via South32 appears to be a sound move. Not only should it allow BHP to focus on maximising its core assets, it should also allow greater efficiencies to be achieved at both companies which could boost profitability. And, with BHP yielding 4.7%, it still appears to be a more favourable income play than the ASX, which has a yield of 4.3%.
Newcrest Mining Limited
Unlike most of its mining peers, Newcrest Mining Limited (ASX: NCM) has posted superb shareholder returns in the last year, with it delivering total returns of 35.6%. A key reason for this is increasing investor optimism not only in the gold price, but in Newcrest Mining itself, with it having made cost cuts and efficiencies in previous years that are set to bear fruit moving forward.
In fact, Newcrest is expected to increase its bottom line at an annualised rate of almost a third over the next two years and, while the ASX has a price to earnings growth (PEG) ratio of 1.45, Newcrest's PEG ratio of 0.69 indicates that its shares offer relatively strong growth at a great price.
