Could KAZ Minerals beat the SOLG share price in 2019?

I reckon KAZ Minerals plc (LON: KAZ) and SolGold plc (LON: SOL) could both be on the threshold of long-term recoveries.

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Shares in KAZ Minerals spiked up by 12% on Thursday, after Q3 production led the miner to lift its full-year guidance for gold production.

With 13% more gold produced than in the previous quarter, reaching 45.1 koz from Q2’s 39.9 koz, full year output is now “expected to be at top end of 160-175 koz guidance range.

On top of that, copper production rose by 7% to 77.2 kt (from 72.3kt in Q2), and the company says it’s on track for meeting full-year guidance of 270-300 kt.

The KAZ share price had been in a bit of a tailspin, having lost more than 50% of its value since its 2018 peak in June. But a month ago, fellow Fool writer Peter Stephens rated the turnaround potential for a recovery as high, and this latest update will surely strengthen that sentiment.

Price recovering?

The share price rise on the day, while welcome, does need to be taken in context — it has actually only just returned to the level it stood at a week ago, before dropping in the days before the current update.

Analysts are predicting modest earnings rises for this year and next, but those would be sufficient to drop the stock’s forward P/E to only 5.6 this year, and as low as 4.8 in 2019. And with the share price so low, dividend forecasts suggest yields of 2% and better, even though the cash would be covered nine times by earnings.

What are the downsides? Net debt of $2bn at the halfway stage at 30 June looks scary, but that’s only approximately 1.5 times annualised EBITDA, which is a multiple that’s generally considered manageable.

We’re looking at an impressively low PEG ratio for 2019 of 0.6 too, which is often a good growth indicator.

KAZ is risky, certainly, but I’m also feeling positive about the recovery potential here.

More glitter

Gold miners tend not to excite me too much, but I can’t help but notice a recent share price spike at SolGold (LSE: SOLG). After a big slump in 2017, the price has soared by nearly 90% in less than two months.

Part of the boost comes from confidence in the firm shown by BHP Billiton which, this month, subscribed for 100 million new shares in SolGold at 45p apiece, to raise £45m for the company.

There are a number of conditions attached to protect BHP’s interest, including the right to appoint a director to the SolGold board. To me, it all adds up to a step forward in governance and a lowering of the risk for private investors.

Some risk

My colleague Peter again appears cautiously optimistic, suggesting thatwhile potentially volatile in the near term, the stock could have investment appeal.” That was before the BHP involvement was announced, and I think the latest news reinforces Peter’s thoughts.

I’m always wary of the fact that gold has little actual use other than as artificially desirable shiny stuff. But it’s in a reasonably buoyant phase at the moment, and with world political and economic uncertainty likely to continue for some time, this could be a good time to get into gold stocks.

I rarely go for risky growth stocks these days, but a younger me could have been tempted by both of these.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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