10 Mining Stocks With Upside Up to 55%: Analysts

NEW YORK (TheStreet) -- MAG Silver (MVG), GoldCorp (GG), International Coal Group (ICO), Puda Coal (PUDA), Rio Tinto (RIO), Barrick Gold Corporation (ABX), Sterlite Industries (SLT), VALE (VALE), Companhia Siderurgica Nacional (SID), Gerdau (GGB) have an upside of up to 55%, based on analysts' consensus estimates of 12-month price targets.

Demand surge for commodities worldwide ensures upswings in most metal prices. Gold and silver have had a good run, delivering around 27% and 90% returns during the past one year, respectively. Besides, a revival in developed economies like the U.S., and a sustained push from emerging markets, would augur well for mining companies.

We have identified 10 mining stocks that investors can consider for the long term. The selected stocks have potential to deliver a 23% to 55% return in the next year and are from countries like the U.K., China, India, Canada, the U.S. and Brazil. The selected stocks have analysts' buy rating of at least 56%, while Sterlite, Puda and Mag Silver have 100% buy rating. These 10 stocks, on average, registered gains of around 50%-55% during the last year, and analysts foresee further upside from present levels.

The stocks are stacked in terms of upside, great to greatest.

10. Gerdau ( GGB) is an integrated steel player operating in Brazil, North America and Latin America. Gerdau produces common and special long steel and flat steel.

Pursuant to its expansion plans, Gerdau added the remaining stake in Ameristeel to fully own the company in June 2010. In December 2010, Gerdau announced its merger with Acos Villares, a company engaged in the production of long steel. These acquisitions during the past six months will increase Gerdau's exposure in specialty steel.

During the third quarter, higher production costs dented profitability, while net income declined 7%. However, the 14% year-over-year growth in sales volume boosted net revenue by 20%. Production volumes were up 9% during the same period.

The stock gained 2.5% in the last year and is trading at 15.5 times its estimated 2011 earnings.

9. Companhia Siderurgica Nacional ( SID) is an integrated steel producer in Brazil with interests in mining and logistics.

Domestic sales increased in recent quarters. Net sales for the first nine months were up 38%, while the share of exports in overall revenue dipped around 27%, compared to 29% during the same period last year.

The company's efficient cost-containment strategy and lower selling and administrative expenses improved operating margins. EBITDA margin rose 43.1% during the first nine months of 2010, compared to 30% in the prior year.

Analysts are positive about the company's earnings profile, although weaker steel prices and higher capex related to investments in a railroad and securities trading could dampen earnings. Overall, analysts' consensus estimates indicate 30%-35% earnings growth during 2011 and the stock is trading at 11.8 times its estimated 2011 earnings.

8. VALE ( VALE) is a metals and mining giant producing iron ore and iron ore pellets.

The proportion of revenue from bulk materials comprising of iron ore, pellets, manganese ore and ferroalloy, metallurgical and thermal coal, as well as sales to Asia, show an increasing trend, recently. Bulk materials contributed 77.7% to third-quarter operating revenues; sales to Asia contributed 56.4% toward total revenue in the third quarter.

Profitability soared during the third quarter. Operating income and net income increased 200% each on robust revenue. Operating revenue rose 110% year-over-year to $14.5 billion. Margins were impressive; operating margin climbed 55.6%, up 8% compared to the second quarter. The stock gained 34% during the last year and is trading at 7.2 times its estimated 2011 earnings.

7. Sterlite Industries ( SLT) is a global player in the metals and mining sector, with a diversified portfolio consisting of non-ferrous metals.

The company completed the acquisition of 74% interest in Black Mountain Mining from Anglo American Group in South America. The acquisition includes the Black Mountain Zinc Mine and Gamsberg zinc project, the company said in a press statement. Besides, the company completed the acquisition of Skorpion Zinc Mine in Namibia from Anglo American for around $700 million.

Sterlite has a strong balance sheet with cash and cash equivalents of $6 billion, which can be used for organic and inorganic opportunities.

On the operational front, production ramp up at its new smelters will augment volumes. The strong performance of its power and zinc segments could improve its earnings profile.

Hampered by regulatory restrictions at its Tuticorin and Orissa projects, the stock has been underperforming the broader market indices and is currently trading at 8 times its 2011-12 earnings.

6. Barrick Gold Corporation ( ABX) is involved in the production of gold and other activities like exploration and mine development.

During 2010 third quarter, net income rose 75% year-over-year to $830 million. Net sales increased 36% during the same period. Third-quarter gold production was 2.06 million ounces, beating the company's estimates following strong performance in North America.

Rising gold prices and lower cash costs supported Barrick's cash margins -- third quarter cash margins increased 52% year-over-year, to $783 per ounce and net cash margins rose 48%, to $888 per ounce.

Commissioning of the Pueblo Viejo and Pascua-Lama projects would improve gold production to 9 million ounces over the next five years. Of the 28 analysts covering the stock, 24 rate it a buy. The stock gained 34% in the last year and is trading at 11.5 times its estimated 2011 earnings.

5. Rio Tinto ( RIO) is a global metal and mining player, especially aluminum, copper, coal and iron ore. Operating in more than 50 countries, Rio sources bulk production from Australia and North America.

Rio Tinto announced an off-market takeover offer to acquire all outstanding shares of Riversdale Mining at a 16 AUD per share cash offer. The company divested the remaining 48% stake in Cloud Peak Energy ( CLD) during December.

The company recently signed an agreement with Ivanhoe Mines for controlling Oyu Tolgoi -- a copper-gold project in Mongolia -- and for increasing its stake in Ivanhoe to 49%.

Global iron ore operations set a new quarterly production record in the fourth quarter. Coking coal and bauxite production also swelled. However, mined and refined copper production slumped during this period.

The company announced capital projects worth $5.5 billion in the fourth quarter and the figure amounts to $10.8 billion for the full year. The stock was a major outperformer in the last one year and is trading at 8 times its 2011 earnings.

4. Puda Coal ( PUDA) is located in China's Shanxi province and supplies high-grade metallurgical coking coal used to produce coke for steel manufacturing in China.

During the third quarter, Puda reported a 60% year-on-year increase in total revenue, driven by higher sales volume and average selling prices of cleaned coal. Net income rose 86% for the quarter, higher than consensus estimates. Gross margin stood at 10.7%, improving 110 basis points from the third quarter of last year.

Puda has an annual coking coal capacity of 3.5 million metric tons. The company has recently moved upstream into coal mining, as an acquirer and consolidator of coal mines in Shanxi Province. The Shanxi provincial government has appointed Puda as a consolidator of 12 coal mines and the company expects higher margins from these mines.

The company's future prospects are robust, given that the burgeoning electricity demand in China would require massive volumes of coal. The stock is trading at 7 times its 2011 earnings, with 100% analyst buy ratings.

3. International Coal Group ( ICO) is a producer of coal in Northern and Central Appalachia, catering to electric utilities.

Coal sale revenue grew 5.6% year-over-year due to higher sales realization of $7.7 per tonne and a 5% increase in tonnes sold, driven by improved demand for both metallurgical and thermal coal.

The stock more than doubled in the last one year. Of the eight analysts covering the stock, six rate it a buy. Analysts are positive on the stock, and as per consensus estimates of analysts surveyed by Bloomberg, the stock is expected to appreciate 37% in the next year. Analysts expect the company to report earnings growth of 50% in 2011. The stock is trading at 7.7 times its estimated 2011 earnings.

2. GoldCorp ( GG) is a Canada-based gold producer with operations in North and South Americas.

During the third quarter, the company reported higher cash flows before working capital in the order of $470.6 million on the production of 596,200 ounces and lower cash costs.

Lower cash costs improved profitability. Net profit surged over 65% year-over-year to $231.5 million. Robust gold sales surged revenue 28% year-over-year to $885.8 million during the September quarter.

Management is optimistic about future gold production, GoldCorp's CEO said in a press statement, "We have begun commissioning of the high pressure grinding roll circuit, representing the completion of Peñasquito construction and the final component of designed 130,000 tonne throughput capacity, which we expect to reach early in 2011. The expected completion of the Andean Resources acquisition will add Cerro Negro, another large, high-quality gold asset in Argentina."

The stock has received buy ratings of 78% and gained 17% during the last year. The stock is trading at 20 times its estimated 2011 earnings.

1. MAG Silver ( MVG) is a silver mining company operating in the Mexican Silver belt.

MAG Silver maintained a strong cash position of $46.5 million at the end of the third quarter. MAG announced an independent updated mineral resource estimate for the Juanicipio Property, which is a standalone underground silver mine owned by Minera Juanicipio, a joint venture between Fresnillo and MAG.

As per a company statement, around 5.2 million tonnes containing 110.8 million ounces of silver and 321,300 ounces of gold could be excavated during the mine's lifetime. Regarding the estimate release, Dan MacInnis, MAG's president and CEO said in a press statement, "We are pleased, but not surprised, to have added over 2 million tonnes and more than 27 million ounces of silver and 111 thousand ounces of gold to our Indicated Resources."

The stock doubled during the last year and analysts' consensus suggests an upside of 55% over the next year.

>To see these stocks in action, visit the 10 Mining Stocks With Upside portfolio on Stockpickr.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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