Shares in gold mining company Centamin (LSE: CEY) have risen by an impressive 64% since the turn of the year. While that may cause a number of investors to doubt the prospects for further gains, Centamin could rise by at least another 30% over the medium-to-long term.
That’s because the outlook for the price of gold is very positive, with a looser US monetary policy making gold seem much more appealing on a relative basis. With interest-producing assets now having lower rates of return than expected due to the Federal Reserve’s lack of interest rate rises, gold is likely to prove more popular than expected even though it produces no income return.
Allied to this potential increased demand for gold is the planned ramp-up in Centamin’s production. It’s on target to produce 500,000 ounces of gold next year and this should boost its bottom line by as much as 10% in the current year. This puts Centamin on a price-to-earnings-growth (PEG) ratio of 1.5 and if its shares were to trade 30% higher they would still have a relatively appealing PEG ratio of 2. Considering the potential for further upgrades to profitability in future years, that level of gain seems to be on the cards.
A perfect TEN?
Also offering 30% share price growth prospects is Tullow Oil (LSE: TLW). Like Centamin, the oil producer is in the midst of ramping up production, with its Project TEN expected to come onstream later this year. This has the potential to quickly increase Tullow’s production over the next couple of years and even though the price of oil is relatively low, rising production should equate to improved profitability.
In fact, Tullow Oil’s earnings are forecast to rise by 155% in 2017. Clearly, that forecast is highly dependent on the price of oil and could be downgraded if that price falls further. However, it provides an indication of the major change set to be experienced by Tullow’s investors, which could improve sentiment in the stock. And with Tullow trading on a PEG ratio of 0.1, a 30% rise in its share price is very much on the cards.
Long-term view
Meanwhile, Premier Oil (LSE: PMO) has recorded a share price rise of 13% in the last month alone and while the outlook for the oil price may be highly uncertain, Premier Oil is positioning itself for long-term growth. It’s doing so through a cost-reduction programme and via M&A activity that has boosted the quality of its asset base. As such, and while its bottom line is due to be in the red for each of the next two years, Premier Oil has the potential to turn its financial performance around.
With Premier Oil trading on a price-to-book (P/B) ratio of 0.5, a 30% share price rise is very achievable. Certainly, there may be further asset writedowns and more pain ahead, but on such a low valuation and with such a sound strategy Premier Oil seems to be worth buying for less risk-averse investors.
