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On a PE of 2.9x and 6.9% yield here’s why Grange Resources is surging today

The Grange Resources Limited (ASX: GRR) share price is up 7% to 29 cents this morning after the Tasmania-based iron ore pellet and magnetite miner upgraded reserve estimates at its Savage River project.

Grange upgraded estimates by 170 million tonnes to 545.2 million tonnes of varying elemental composition at the mining project.

Grange has a fanatical group of small-cap investors backing the business mainly thanks to its seemingly large profitability, but low valuation.

For the 12 months ending 31 December 2018 it reported a net profit of $112.9 million on revenue of $368.2 million, with 2 cents per share in dividends declared for the year, while basic earnings per share came in at 9.8 cents.

In other words even at a 52-week high of 29 cents the stock offers a 6.9% yield and sells for just 2.9x trailing earnings per share.

Often though when a business is excessively cheap it’s a red flag for investors to ask why, as often the valuation can disguise one offs in the accounts or excess debt putting other investors off.

As such bargain hunter should do plenty of research before considering taking the plunge.

Other mining leaders in the space have also been surging off the back of a rising iron ore price. For example BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG) all hit 52-week share price highs in the last month.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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