Today I am looking at the share price prospects of three London laggards.
Digger continues to dive
It comes as little surprise that dedicated red metal producer KAZ Minerals (LSE: KAZ) has seen its shares lose two-thirds of their value during the course of 2015. Prices of ‘Doctor Copper’ have steadily sunk during the period and took in six-year lows below $4,500 per tonne just this week, reflecting rising fears over the health of the global economy, and particularly that of China.
And these concerns are not likely to abate any time soon, in my opinion, a troubling scenario for the Kazakhstani digger. The company saw revenues decline by a fifth during January-June, to $341m, while a colossal $1.85bn net debt mountain as of September — surging from $1.59bn just three months earlier — serves as an extra worry.
KAZ Minerals was able to defer a $300m payment to one of its major contractors last week, giving it some breathing room until 2018. And while the business also remains busy stripping costs out of the system, I believe such measures are likely to prove nothing more than temporary respite as global copper output relentlessly climbs; Chinese economic growth cools; and metal prices subsequently remain under pressure.
Ample production weighs down prices
And these troubles are not likely to prove a short-term phenomenon, putting the economic viability of KAZ Minerals’ Bozshakol and Aktogay projects under increased scrutiny. Indeed, the OECD expects Chinese GDP expansion to slow from 6.8% in 2015 to 6.5% in 2016, and again to 6.2% in 2017.
But KAZ Minerals is not the only casualty of toppling commodity demand, naturally, and fossil fuel producer Premier Oil (LSE: PMO) has also seen its revenues smashed in recent times. A leap in the Brent price during the spring proved all too brief, and black gold is gradually edging back towards multi-year troughs around $45 per barrel.
Premier Oil saw revenues skate 35% southwards in the first half of 2015, to $577m, and like KAZ Minerals is battening down the hatches to strengthen the balance sheet. Just last week the business sold its Norwegian assets to Det Norske Oljeselskap for $120m, reducing its colossal $2.3bn net debt pile and reducing operating costs.
But in my opinion there is little reason to expect an earnings turnaround at Premier Oil any time soon. Indeed, talk that crude could topple as low as $20 continues to circulate as rocketing US, OPEC and Russian output keeps global inventories at bursting point.
Losing its shine
Precious stones supplier Petra Diamonds (LSE: PDL) has also been one of the FTSE’s major mining sector casualties during the course of 2015, a steady string of profit warnings sending its shares almost three-quarters lower since the turn of January.
Subdued Chinese diamond demand, combined with bulging polished stone inventories, has seen prices of the status symbols skid steadily lower in recent times. Petra Diamonds advised last month that values had fallen 8.8% in US dollar terms during July-September from the previous quarter. Consequently the company recorded absolutely no revenue growth in the latest three-month period.
So although Petra Diamonds continues to steadily increase output — production nudged to a record 842,796 carats between July and October — this progression is being offset by an environment of reduced material prices. Until the market oversupply greatly improves I do not expect Petra Diamonds’ share price, or indeed those of KAZ Minerals and Premier Oil, to pick up any time soon.
