Shares in iron ore producer Ferrexpo (LSE: FXPO) have surged by around 24% today on the back of rising metals prices. As such, investor sentiment in the wider resources sector has been given a boost and, suddenly, the outlook for investors seems to be a little brighter.
However, the reality is that companies such as Ferrexpo face highly challenging outlooks. For example, in the 2015 financial year Ferrexpo is expected to have recorded a pre-tax loss of £19m, even though it delivered record production during the year. As a result of this, Ferrexpo’s shares have fallen from a high of 80p to a low of just 15p in the last year.
However, with Ferrexpo due to return to profitability in the 2016 financial year, its shares could begin to move upwards. And with there being the scope for a further increase in metals prices, now could be a good time to buy them. Certainly, they remain relatively high risk, but with Ferrexpo trading on a forward price to earnings (P/E) ratio of only 7.1, it could prove to be a surprisingly strong performer in the coming years.
As well as metals price rising in recent days, the price of oil has also been creeping up. This could be good news for investors in Rockhopper (LSE: RKH), especially since its shares have fallen by a whopping 59% in the last year. However, with the recent disappointment of the failure to award Rockhopper a production concession for the Ombrina Mare field in Italy still likely to be weighing heavily on investor sentiment, the company’s short term outlook may appear to be rather downbeat.
Looking further ahead, though, Rockhopper continues to be relatively well-funded and has an asset base which offers considerable long term profit potential. Certainly, a decline in oil prices would hurt it, but for less risk averse investors seeking a small oil explorer, Rockhopper could be of interest. That’s especially the case since Rockhopper has a relatively well-diversified asset base when compared to a number of its similarly-sized exploration peers.
Meanwhile, shares in Rare Earth Minerals (LSE: REM) have continued their slide, with them being down by 24% in the last three months. However, today’s news that Rare Earth Minerals has increased its stake in European Metals Holdings by 7.9% to 19.8% at a cost of £670k could improve its long term outlook. That’s because it adds to the company’s equity positions in major lithium deposits, with there being the potential for large-scale, low cost production over the long run.
Clearly, Rare Earth Minerals has a significant amount of long term growth potential since demand for lithium is likely to rise in future years as the importance of cleaner energy rises and products utilising lithium battery power increase in prevalence. As a result, and despite their recent share price performance, shares in Rare Earth Minerals may be of interest to less risk averse investors.
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Peter Stephens owns shares of Ferrexpo. 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.