The world’s largest producer of thermal coal and a world-class copper miner, Xstrata’s (PINK:XSRAF) earnings spiked 86 percent during fiscal year 2010. Metals analyst John Tumazos of John Tumazos Very Independent Research tells Barron’s the company’s significantly under-valued compared to its peers. Indeed, shares trade at a 10 percent discount to Xstrata’s coal and copper assets alone. If that isn’t enough, here are three more reasons to consider adding Xstrata to your portfolio:
1) Leader of the pack. Xstrata has “the greatest growth upside” of any of the large-cap miners, according to analysts at Credit Suisse. Copper and coal volumes are expected to surge at an average of 50 percent over the next five years Barron’s reports. That’s good news as prices for both commodities have surged toward record levels this year. Xstrata’s also got significant nickel, zinc and alloy deposits including primary vanadium and platinum group metals. As a bonus, the company provides technology services for large-cap miners including Anglo Platinum Limited (PINK:AGPPY) and Goldcorp Inc. (NYSE:GG).
2) Rain, rain go away. Flooding in Australia has temporarily halted output at the company’s Ulan mine, which has an annual output capacity of 4 million tonnes of thermal coal, according to The Australian. The flooding has also affected coal output at BHP Billiton, Rio Tinto, Peabody Energy and Anglo American, stoking coal prices around the world. Xstrata’s strong balance sheet should help the company get the mine back online quickly, and Xstrata claims the shutdown will have little effect on profits.
3) Dividends are good. Xstrata recently returned its dividend to pre-crisis levels with a year-end payout of 20 cents. It was a move that was significantly higher than expected, Paul Galloway, analyst at Sanford Bernstein, tells the Financial Post. If copper and coal prices keep climbing, expect even better dividends in the years to come.
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