For financial analysis, mining companies have general features that can be examined qualitatively and used quantitatively. These involve the resources to be mined and investors need to be mindful of the total amount available for extraction. Essentially, if there are more resources to be mined, along with the possibility of uncovering more resources with greater certainty, then a company has grounds for a better valuation.
The 20 companies featured in Table 1 are scored using purely quantitative metrics. If these companies are sound quantitatively, investors can further analyse them qualitatively before deciding to add them to their portfolios. Table 1, which is also a scoring table, shows the market capitalisation, listed exchange and mined resources of the individual mining companies, and considers the following six quantitative aspects:
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- Historical performance, which looks at the company’s historical financials over the past 10 years or since inception, where discounts are given for poor performance and inconsistency.
- Profitability, which looks at profitability ratios such as return on equity, return on assets and margins.
- Yields and relative valuation, which compares the company’s fundamental yields against the risk-free rate and its relative valuation to peers.
- Financial safety, which examines the company’s balance sheet, comprising liquidity and solvency ratios, the quality of its shareholder equity, and any external credit rating on the company.
- Sentiment, which looks at analyst ratings and forward price ratios on the company.
- Price-to-value analysis compares price growth to weighted value growth across multiple periods. This weighted value includes revenue, net income and cash flows in ascending order.
Several companies are excluded from the list, mainly due to restrictions on domestic investors’ investability.
Toronto-listed Agnico Eagle Mines and New York-listed Newmont Corp are the top-scoring mining companies for further qualitative analysis and potential inclusion in investors’ commodity portfolios. Chart 1 shows the 1-year cumulative returns for selected commodities, while Chart 2 shows the year-to-date cumulative returns for them.
