The Motley Fool

Time to buy mining stocks?

Rio Tinto (ASX: RIO) has applied to the NSW Supreme Court to speed up the appeal against its recent decision to reject the expansion of its Warkworth coal project or jobs will be lost.

At a time when the resource industry is faced with tough tax hikes, the high Australian dollar and potentially volatile commodity prices, Rio is joining the list of miners like Atlas Iron (ASX: AGO) and Fortescue Metals Group (ASX: FMG) who have felt the heat from the current export environment. Even BHP Billiton (ASX: BHP), Rio’s biggest competitor in Australia, has been forced to sell assets to inspire investors.

Rio says “significant job losses are expected if economic conditions remain the same unless the mine can maintain its volume of product coal produced”. Rio already cut 40 jobs this month after it was rejected in the NSW Land and Environment Court from expanding its Mount Thorley mine.

Rio has slammed the court with the aid of industry bodies saying that they are unreasonably heightening the uncertainty in the mining sector. However, opponents like Richard Dennis from Australia Institute said Rio is overstating the number of jobs the expansion would create but ‘overstating the benefits of mining projects is a serious matter” and the impacts on the environment from projects like Rio’s is “enormous”.

Foolish takeaway

With much doom and gloom getting preached by various market commentators throughout the country, mining seems done and dusted. However, just because we may not see a resource ‘boom’ anytime soon doesn’t mean there is no bargain to pick up from the sector.

When push comes to shove, bigger miners like BHP, Rio and Fortescue will produce commodities at a cheaper rate than smaller counterparts and will still turn a profit. The three miners can currently be seen as a bargain, trading at P/E ratios of 12.69, 10.94 and 6.75 respectively – of course there are other factors to consider but remember to ‘buy when others are fearful and sell when the market is greedy’.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz owns shares in Rio Tinto.

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