The future for the mining sector remains exceptionally volatile. Not only is there likely to be continued weakness in the price of a wide range of commodities, with a global supply/demand imbalance unlikely to change in the short run, investor sentiment is also showing little sign of improving, with the prices of a range of mining companies being akin to a rollercoaster ride in recent months.
And, while the price of gold had been relatively stable in recent months as a result of uncertainty regarding the Eurozone, it has now pulled back to a five year low. As such, the price of gold miners such as Centamin (LSE: CEY) have fallen significantly, with Centamin’s share price being 15% down in the last month alone.
However, this could be the perfect time to buy a slice of it. For starters, the crisis in the Eurozone is almost certainly not over, with it being likely that further deals will be needed for highly indebted countries that simply cannot afford to repay the enormous debts that have been racked up. And, with the single-currency region displaying exceptionally slow growth and the Chinese economy undergoing a soft landing, further challenges for the global financial system are likely to come into play.
As such, the performance of gold may be stronger than the market currently anticipates and, as a result, Centamin is forecast to increase its bottom line by as much as 24% next year. And, with the company trading on a price to earnings (P/E) ratio of just 9.8, it equates to a price to earnings growth (PEG) ratio of only 0.3. This indicates that an upward rerating could be on the cards over the medium to long term.
Meanwhile, other mining stocks such as Anglo American (LSE: AAL) continue to offer superb income prospects. Certainly, its profitability has come under pressure in recent years but, with earnings set to rise by 25% next year, it means that Anglo American’s dividends are due to be covered 1.4 times by profit in 2016. As such, the company’s yield of 6.6% appears to be sustainable and has room to grow over the medium to long term.
Furthermore, Anglo American continues to offer greater diversity than most mining stocks, with it having operations in a number of different commodities. And, with its shares trading on a P/E ratio of just 14, they appear to offer good value for money, too.
Of course, not all mining stocks have endured such a tough 2015. For example, Amur Minerals (LSE: AMC) has soared by 102% since the turn of the year as the approval of its long term licence at the Kun-Manie prospect in Russia has buoyed investor sentiment.
Clearly, there is a long way to go with the project and the company’s financing plans are yet to be fully laid out. Furthermore, Amur Minerals’ share price remains incredibly volatile (it is up 14% today, for example). However, for investors who can live with a relatively high degree of risk, the potential rewards could be significant. The Kun-Manie prospect could prove to be a hugely profitable mine for Amur Minerals and, while financing remains a major question mark, that is the case for almost all smaller resource exploration companies. As such, pairing it up with the likes of Anglo American and Centamin seems to be a sound move.
