Shares in Lonmin (LSE: LMI) have soared by 22% today after it released a positive production update that showed it’s making a successful turnaround. In fact, Lonmin reported a narrower loss in the first half of the year, with its second quarter in particular showing that its new strategy is starting to take hold. And with Lonmin reiterating guidance for the full year, it seems to be gaining momentum as the outlook for the wider commodities sector improves.
Although Lonmin was still lossmaking in the first half, with its pre-tax loss being $21m, this is well down on the $118m loss reported in the same period of the previous year. The key reason for this was lower asset impairments, although Lonmin’s revenue also moved higher as its output of platinum rose.
Looking ahead, Lonmin is still a long way from returning to full health. However, with it having the capital to effect a turnaround following last year’s fundraising and a new strategy that seeks to cut costs and deliver a more efficient business model, now could be a sound time to buy it for the long haul.
Bright prospects
Also posting impressive share price gains of late has been Polymetal (LSE: POLY), with the precious metals miner recording a rise of 33% in its valuation since the turn of the year. A key reason for this has been the improved prospects for gold, with investors warming to gold mining companies and pushing their share prices upwards.
Although Polymetal has risen significantly this year, there’s still room for more capital gains. That’s at least partly because the Federal Reserve is now expected to increase interest rates only once or twice this year and this should have a positive impact on the price of non-interest-bearing assets such as gold. And with Polymetal forecast to increase its bottom line by 63% this year and having a price-to-earnings growth (PEG) ratio of 1.9, its shares could move higher over the medium term.
Shares set to lag
Meanwhile, shares in Genel Energy (LSE: GENL) have also moved higher in recent weeks. In fact, over the last month they’re up by 23% as the prospects for the wider oil sector have improved. There’s potential for further improvement in this regard since the supply of oil is likely to come under pressure over the medium term due to it being uneconomic for a number of producers to operate with oil trading at less than $50 per barrel.
The problem for investors in Genel, however, is that the company continues to have a challenging financial outlook. Not only is it owed millions from previous oil sales, but it’s set to report a major loss in the current year as a result of an asset impairment. This’s due to a reduction in the amount of reserves at one of its key assets and while investors may have already priced-in the loss to a degree, Genel’s share price could still lag the wider resources sector in the coming months.
