2015 has been one of the most disappointing years in the recent past for investors in mining stocks. Commodity prices have mostly fallen, investor sentiment has generally weakened and the share prices of operators in the resources space have almost exclusively declined.
For example, gold producer Randgold Resources (LSE: RRS) has suffered from a fall in the price of gold to a five-year low. As a result, its bottom line is forecast to fall by around 12% in the current year and this means that during the last three years its earnings will have fallen by 36%, 16% and 12%. That equates to a total fall of almost 53%, which has hurt investor sentiment and led to a fall in the company’s share price of 11% since the turn of the year.
However, things are looking up for Randgold Resources. That’s because gold prices can perform inversely to the wider global economy, as investors seek a store of wealth, and if the Chinese economy’s growth rate does continue to fall, gold could become the must-have asset as it was during the credit crunch. In the meantime, the performance of Randgold Resources is expected to improve significantly next year, with its earnings forecast to move upwards by 25%. This puts the stock on a price to earnings growth (PEG) ratio of just 0.9, which indicates that it offers growth at a very enticing price.
Similarly, there is considerable potential elsewhere in the mining sector, with the likes of Amur (LSE: AMUR) and African Potash (LSE: AFPO) offering the scope for high rewards in the long run.
In the case of the former, its shares have soared by 66% this year after it was granted a licence for the Kun-Manie prospect in Russia. Furthermore, more good news has been released today, with Amur announcing that the initial results from its drilling programme at the Flangovy project have expanded the mineralised zone at the site by around 40%. This is excellent news for the company, with the total length of the deposit now standing at over 2km long and it being much greater than previous estimates had anticipated. As a result, Amur’s share price has spiked by over 3% today and, while there are logistical and financing challenges ahead, it appears to be a sound buy for less risk averse investors.
Similarly, shares in African Potash rose sharply today after it released an update. In fact, the company’s shares traded as much as 11% higher after it announced that it has entered into a Memorandum of Understanding with a Zimbabwean fertiliser supply company, with a view to supplying around 150,000 metric tonnes of fertiliser. This is yet more evidence of the growth potential of the company, with it being the third such agreement signed in recent weeks. And, with African farms apparently only operating at 40% of their potential, African Potash could benefit from buoyant demand for fertiliser over the medium to long term. Additionally, African Potash’s price to book (P/B) ratio of 1.7* does not appear to be excessive given that its shares have soared by 145% since the turn of the year.
So, while the mining sector has endured a tough period, there are still opportunities for investors to profit. And, as a result of its high level of profitability, excellent medium term growth potential and the scope for gold to become a more in-demand asset if global growth prospects worsen, Randgold Resources appears to be the pick of the three companies at the present time.
