The last few years have been somewhat mixed for investors in the resources sector. Commodity prices have generally disappointed, but have made a relative recovery in recent months. However, there is still significant uncertainty among investors regarding the future of the industry. As such, now could be a good time for long-term investors to buy resources shares which offer wide margins of safety.
With that in mind, here are two mining stocks that could be worth buying for the long term. While relatively risky, their return potential appears to be high.
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
Positive outlook
Reporting on Friday was lithium exploration and development company Bacanora Minerals (LSE: BCN). Its interim results showed that it continues to offer significant long-term growth potential. During the period, it completed a feasibility study which confirmed the economics and favourable competitive position of a 35,000 tonnes per year battery grade lithium carbonate operation at the company’s key Sonora Project in Mexico.
The growth potential of the business appears to be substantial. Demand for lithium products is expected to grow in future, with emerging industries such as electric vehicles and energy storage forecast to be key drivers. This could provide a tailwind to the company and with its progress being impressive in recent months, it appears to have a bright future.
Bacanora’s feasibility study estimates a pre-tax project net present value (NPV) for the Sonora Project of $1.25bn. With the company having a market cap of around £126m, it appears to offer upside potential. While risky and some way off first production, the stock could be a strong performer given the current outlook of the world economy.
Low valuation
Also offering upbeat investment potential at the present time is copper and gold miner KAZ Minerals (LSE: KAZ). The company has experienced a resurgence in the last couple of years, returning to profitability after a lossmaking period. This was largely driven by a ramp-up in production, as well as more favourable commodity prices.
Looking ahead, the company is forecast to grow its bottom line by 37% in the current year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.2, which suggests that it could offer significant upside potential.
Of course, commodity prices could fall, and this would put KAZ Minerals’ forecasts under pressure. However, with the company being a gold producer, it may offer some defensive characteristics in case the outlook for the world economy deteriorates. Gold has historically been seen as a store of wealth during more challenging economic periods, and this could offset falls in other commodity prices for the business.
With dividends due to start this year, the company’s management team appears to be upbeat about its future prospects. Even after a share price rise of 63% in the last year, the stock still appears to offer significant capital growth potential over the long run.
