Will Sirius Minerals PLC, Fresnillo Plc And Randgold Resources Limited Rise Or Fall By 20% This Year?

Shares in precious metals miners Randgold Resources (LSE: RRS) and Fresnillo (LSE: FRES) have had a superb year-to-date. Their share prices have risen by 42% and 58%, respectively during a time when many of their resources peers have fallen further into the red. The key reason for that, of course, is the performance of precious metals such as gold and silver, which has probably been the most surprising story of 2016.

Due to investors across the globe becoming increasingly nervous in recent months, demand for gold as a store of wealth has increased dramatically. And with the outlook for the global economy still being rather uncertain, the prospects for further price rises are relatively strong. This could help to boost Fresnillo and Randgold Resources’ profitability, while a slower than anticipated increase in interest rates from the Federal Reserve should also make non interest producing assets such as gold and silver more popular among investors.

Purple patch

With Fresnillo and Randgold Resources forecast to increase their bottom lines by 273% and 26%, respectively, in the current year, they appear to be in the midst of a purple patch. Although their price-to-earnings (P/E) ratios of 55 and 36, respectively, are relatively high, when they’re combined with such high rates of growth they equate to very appealing valuations. In fact, the two companies trade on price-to-earnings-growth (PEG) ratios of just 0.4 and 1.4 and therefore they appear to offer further upside.

Clearly, their future profitability and share price performance are highly dependent on the prices of precious metals. But with clear potential catalysts and wide margins of safety on offer, now seems to be a good time to buy both stocks due to their prospects for 20% gains rather than 20% losses. Neither stock has a bright near-term future when it comes to dividend payments, with yields of 0.8% (Fresnillo) and 0.7% (Randgold Resources).But with such strong profit growth their dividends could rapidly rise and act as a further positive catalyst on their share prices over the medium-to-long term.

Improving sentiment

Meanwhile, shares in Sirius Minerals (LSE: SXX) have also risen this year, with the potash specialist overcoming investor disappointment to post a valuation rise of 11% year-to-date. Although delays to the pre-feasibility study did push it into the red, it seems to have benefitted from improving investor sentiment towards the wider mining sector.

This could be because of uncertainty regarding funding for the £1bn-plus project. While the outlook for miners remains uncertain, investors may now be feeling more confident regarding the potential for Sirius Minerals to obtain the necessary funding in a more upbeat investor environment.

Still, there’s a very long way to go until Sirius Minerals becomes a profitable business and while it has the potential to do just that after a period of positive new flow, a number of other mining plays may have more appeal. Certainly, Sirius Minerals is capable of rising by 20% this year, but there may be other stocks which have a better chance of doing so, while also having less risk.

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Peter Stephens has no position in any shares mentioned. 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.