Since the EU referendum, shares in gold producer Centamin (LSE: CEY) have soared by 47%. The key reason for this is a flight to safety among nervous investors, with gold seen as a store of wealth during an uncertain period.
Looking ahead, the likelihood of further volatility in stock markets means that the gold price should keep rising. That’s especially the case since US interest rate increases have been slower than expected. This means that gold has less competition from income-producing assets and so is more appealing on a relative basis.
The rise in the gold price will benefit Centamin and its gold-producing peers. This is evident from the forecast rise in its bottom line of 55% in the current year, which puts it on a price-to-earnings growth (PEG) ratio of just 0.3. This indicates that while it has risen significantly in recent weeks, Centamin’s share price could move much higher over the short-to-medium term.
Furthermore, today’s update from Centamin shows that it has increased production by 30% in Q2 versus the same period last year. This is 12% higher than the previous quarter and shows that the company is on track to meet its long-term production targets. And with productivity being high and the optimisation of the processing operation continuing, Centamin also seems to be on track to record excellent returns in future.
Well-positioned for growth?
Despite challenges in the iron ore price in recent months, Rio Tinto (LSE: RIO) remains a top-notch mining play for the long haul. That’s at least partly because of the strength of its asset base as well as its exceptionally low cost curve. This means that Rio Tinto is well-equipped to survive and prosper from any further downturns in the iron ore industry and could grab market share so as to record improved profitability in the long run.
Although Rio Tinto’s share price gains of 27% in the last six months are impressive, there could be much more to come. It trades on a price-to-book (P/B) ratio of less than 1, which indicates that upward rerating potential is high. Certainly, uncertainty is considerable given the fact that Rio Tinto is undergoing a period of management change that could see a refreshed strategy, but it seems to have the required ingredients to deliver further rises in its share price.
Dealing with change
Meanwhile, BHP Billiton (LSE: BLT) continues to offer upbeat long-term growth prospects. It’s currently enduring a period of major change that has included asset spin-offs and cost-cutting. While this process has been challenging for its investors, it should create a more efficient and leaner business that can better withstand further falls in commodity prices over the medium-to-long term.
In fact, as soon as next year BHP Billiton is expected to begin to improve on its disappointing performance of recent years. It’s forecast to deliver a rise in earnings of 162% and although this is highly dependent on the prevailing commodity prices, BHP Billiton offers a sufficiently wide margin of safety to merit purchase at the present time. For example, it has a PEG ratio of only 0.2 and given its financial strength and sound strategy, this is a relatively appealing price to pay.
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Peter Stephens owns shares of BHP Billiton, Centamin, and Rio Tinto. The Motley Fool UK has recommended Rio Tinto. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.