Whether you’re bullish or bearish on commodity prices, there are opportunities to profit from companies within the oil and mining sectors. One example is gold producer Centamin (LSE: CEY). Its shares have risen by 17% in the last six months and part of the reason for this is a gold price that has held up well despite a rise in US interest rates last month.
Looking ahead, gold prices could move higher during the course of 2016 as investors continue to be worried about the outlook for the global economy. This could more-than-offset the negative impact of a rising US interest rate and prove to be beneficial for Centamin’s bottom line.
However, the real opportunity for Centamin, which has been highlighted in recent updates, is the progress it’s making towards increasing production. The company is on target to produce 500,000 ounces of gold in 2017 and even if gold prices do come under pressure, Centamin’s profitability is likely to rapidly rise simply because it will be selling more gold.
This means that Centamin’s net profit is forecast to increase by 19% in the current year and potentially by more next year. With the company’s shares trading on a price-to-earnings (P/E) ratio of 11.5, such strong growth doesn’t yet appear to be priced-in.
Good time to buy
Also increasing its production over the medium term is Tullow Oil (LSE: TLW). It recently reported that progress on its TEN project in Ghana is on track and production from the project is due to commence in the middle part of the current year. This has the potential to provide a step change in Tullow’s oil production and is a key reason why the company’s bottom line is forecast to rise from £67m in 2015 to £142m on a pre-tax basis in 2016.
While the price of oil could fall further in the coming months and cause a downgrade in Tullow’s profit guidance, the company’s valuation offers a wide margin of safety. In fact, Tullow trades on a price-to-earnings growth (PEG) ratio of just 0.2 and with cash flow set to rapidly increase, dividends could also rise at a rapid rate. As such, now seems to be a good time to buy Tullow for the long term.
Meanwhile, KAZ Minerals (LSE: KAZ) is also in the midst of production increases. It restructured in late 2014 in order to focus more on the delivery of its major growth projects. They will centre around low-cost, open-pit mines on a large scale, with KAZ Minerals expected to increase production of copper by 35% per annum between 2014 and 2018.
According to its latest production report, KAZ Minerals will meet the current year’s production target. And while the company is lossmaking and is expected to remain so in 2016, its potential for higher production in future years means that for less risk-averse investors, it could prove to be a sound buy. That’s further evidenced by the fact that KAZ Minerals trades on a price-to-book-value (P/B) ratio of just 0.3, which indicates upside potential in future years.
