Could BHP Billiton plc, Randgold Resources Limited & Rare Earth Minerals PLC Fall By 50% In This Market Crash?

While stock markets across the globe have seen their levels fall drastically since the turn of the year, the price of gold has risen by 3%. On the one hand that’s not a major surprise. During periods of market turmoil gold can perform relatively well due to many investors flocking to it as a perceived store of wealth.

However, on the other hand US interest rate rises in December should have caused downward pressure on the price of gold. That’s because gold tends to perform poorly during periods of interest rate rises as other interest-bearing assets become more appealing by comparison. Clearly, the seeking of a store of wealth has been a stronger force than that of interest rate rises in recent weeks.

As a result of this, the share price of gold miner Randgold Resources (LSE: RRS) has risen by 8% year-to-date. Looking ahead, further gains in the Africa-focused company are very much on the cards, with the price of gold likely to be underpinned by continued investor fear. And with Randgold being forecast to increase its bottom line by 21% in the current year and its shares trading on a price-to-earnings growth (PEG) ratio of 1.3, a fall of 50% seems highly unlikely. Rather, a potential gain in the long run indicates that now is the time to buy a slice of the business.

Long-term potential

Also outperforming the wider market in 2016 has been lithium exploration company Rare Earth Minerals (LSE: REM). Its shares are up around 1% since the turn of the year, benefiting from positive news flow regarding the company’s long-term prospects. For example, European Metals Holding Ltd (in which Rare Earth Minerals has a 12% stake) released an encouraging update in the first week of January, while an upgrade to indicated resources at the company’s Sonora project in Mexico in November continues to support investor sentiment in the stock.

Looking ahead, Rare Earth Minerals has significant long-term potential due to forecast growth in demand for lithium as battery power becomes more prevalent in a more environmentally-conscious world. As such, and while Rare Earth Minerals remains a relatively risky buy, the chances of a 50% fall due to the wider market crash seem unlikely.

Risks and rewards

One stock that has fallen heavily in 2016 is BHP Billiton (LSE: BLT). Its shares have been hurt by details of a $7.2bn impairment charge and this, alongside further falls in the prices of oil, iron ore and copper, has led to a slump in BHP’s share price of 15% since the turn of the year.

Further falls could be on the cards since the prices of those three commodities are showing little sign of mounting a major comeback. And while BHP is a diversified resources company with a sound balance sheet, if commodity prices collapse further, there’s only so much it can do to cut costs.

While BHP’s short-term outlook is risky, its long-term prospects remain bright. That’s because it looks set to cut its dividend and potentially embark on acquisitions while assets are trading at discounts. With global energy demand likely to soar in the long run, buying such assets now could give BHP a more dominant position, as well as higher profitability. So while short-term paper losses may be incurred by buying BHP, in the long run it’s a highly appealing buy at the present time.

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Peter Stephens owns shares of BHP Billiton. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.