Premier Oil (LSE: PMO) has agreed to a further deferral of the test of its financial covenants. This is positive news for the oil producer and means that the test for the 12-month period ending 31 July 2016 will now be waived and replaced by a test for the 12-month period ending 31 August 2016.
Premier is continuing to progress well in negotiations regarding its existing debt arrangements. It’s targeting agreement of terms for the current quarter and states in today’s update that a further deferral of the covenant test date will be sought if required.
Clearly, it’s a relatively risky investment owing to its uncertain financial outlook. The company has an appealing asset base and is making changes to its business model to reduce costs and become more efficient. However, it’s set to remain lossmaking in each of the next two years. Therefore, it may only be of interest to less risk-averse investors, although its shares offer considerable upside potential if the price of oil continues to stabilise and then recover.
Lower costs
Also updating the market today was Lonmin (LSE: LMI). The platinum producer’s third quarter production numbers saw mined platinum ounces rise by 3.3% even though the company’s workforce has fallen by 19% since June 2015. Furthermore, its unit costs fell by 2.2% despite South African inflation standing at 6.3% and Lonmin enduring an increased number of safety stoppages.
Looking ahead, its net cash position of $91m and sound strategy indicate that the shares could continue to rise following their 187% gain since the start of the year. And with Lonmin not having fully harnessed the associated benefits and productivity gains on offer, its performance could improve over the medium term.
Clearly, it’s highly dependent on the price of platinum and on investor sentiment towards the mining sector. But with cash generation set to improve and Lonmin forecast to return to profit next year, it has appeal for less risk-averse investors who are able to take a long-term view.
Continuing progress
Meanwhile, shares in Vedanta (LSE: VED) have fallen by 2% today after it released production numbers for the first quarter of the current financial year. It continues to make good progress regarding the ramp-up of capacities at its aluminium, power and iron ore businesses, with those three segments set to be significant contributors to earnings over the course of the year. And while Vedanta’s zinc division saw lower mined metal production, it’s making good progress towards optimising costs in its copper division.
Looking ahead, Vedanta is focused on reducing its balance sheet risk, as well as reducing costs through a rationalisation programme. Its cash flow is also likely to rise due to those changes and as a result, its shares could continue to rise following their 100%-plus gain year-to-date.
