Hurricane Energy (LSE: HUR) has recorded stunning share price growth over the last year. Its shares have risen by over 325% and there is little sign of a slowdown. This has been particularly impressive given the uncertain performance of the wider Oil & Gas sector, where a number of the company’s sector peers have experienced declining share prices in recent months.
Looking ahead though, another resources company could offer superior capital growth prospects. Here’s why.
The company in question is gold producer Acacia (LSE: ACA). It released results for the three months to 31 March on Thursday which showed it has made operational gains. Gold production was 219,670 ounces versus 190,210 ounces in the same period of the prior year. And with cash costs falling from $693 per ounce to $577 per ounce in the same time period, the company’s profitability was boosted.
In fact, thanks in part to an average realised gold price which was $71 per ounce higher than in the same quarter of the previous year, Acacia’s net earnings went from being in lossmaking territory to a profit of over $26m. This allowed it to increase capital expenditure, reduce debt levels and yet retain a relatively healthy cash balance in order to provide a sustainable growth platform for the long run.
Clearly, Acacia’s strategy of reducing costs and increasing production is working well. However, the company could also benefit from an improving outlook for the gold price. This is a key reason why its shares could outperform those of Hurricane Energy, since their futures may take very different paths.
Demand for gold may increase over the medium term. Higher spending plans in the US and lower taxation may cause inflation to spike. While this has not yet taken place, President Trump’s plans have not yet begun to bear fruit. Should they do so, investors may seek a natural store of wealth such as gold, which may increase its price. And with various geopolitical factors such as North Korea providing risks to the global economic growth outlook, buying gold-mining shares such as Acacia could be a sound move.
By contrast, the Oil & Gas industry may endure a tougher period in 2017 and beyond. The price of oil may come under pressure if the OPEC deal to cut production is not extended beyond the middle of 2017. This could cause uncertainty among investors in the sector and lead to depressed share prices. In addition, supply and demand imbalances in the Oil & Gas industry continue to exist and this may force valuations lower.
Clearly, Hurricane Energy has been a stunning investment in the last year. However, today its attractiveness from an investment perspective may be inferior to that of gold mining shares such as Acacia. Despite uncertainty regarding its Tanzanian operations, its growth outlook remains upbeat and now could be the perfect time to buy it for the long run.