My second company has a single-digit price/earnings ratio, despite having delivered a 560% share price rise since April 2016.

Trouble down the pit

Not so long ago, mining firm Petra Diamonds Limited (LSE: PDL) was a FTSE 250 stock. The group, which owns the famous Cullinan mine in South Africa and also operates in Tanzania, has been trying to expand over the last few years. But the company has faced a number of headwinds and has now cut its guidance for the year ahead.

In a trading update today, Petra said that production had been suspended in a section of its Finsch mine, due to unstable rock conditions. As a result, the firm has cut its 2019 production guidance from 5.0m-5.3m carats to 4.6m-4.8m carats.

The group’s 2018 revenue is expected to be broadly in line with expectations, at about $577m. But costs seem likely to be higher than expected, due to adverse exchange rate movements and lower-than-planned mine production. I believe full-year profits may now be lower than current forecasts suggest.

Bargain buy or value trap

In its half-year results in February, Petra Diamonds reported a tangible net asset value of about 51p per share. The stock was trading at about 48p at the time of writing, so the shares look cheap relative to the value of the firm’s assets.

They also look cheap relative to 2019 forecast earnings, which suggest a forward price/earnings ratio of just 5.2.

My concern is that we could still see more bad news. Net debt remains high at $436m, despite Petra raising $178m in a rights issue earlier this year. And the company is still locked in a costly tax dispute with the government in Tanzania.

In my view, these risks make the stock a potential value trap, and one to avoid.

Chairman says “stay tuned”

Shares of China-focused zinc and gold miner Griffin Mining (LSE: GFM) have risen from a low of 21p in February 2016 to more than 140p at the time of writing. Shareholders who’ve been on board for this ride have seen gains of about 560% over this period, turning a £5k investment into a £32.5k position.

Supporters of the stock say that it’s still cheap, thanks to a debt-free balance sheet and the long-awaited award of a mining licence to expand into a new zone of its Caijiaying Zinc-Gold Mine.

Expectations are high among shareholders, but of course it will take a period of time and some expense to develop this section of the mine and bring it into production.

A good China stock?

AIM-listed companies operating in China have had a bad reputation in recent years. But Griffin has been listed in London since 1997 and appears to be profitable and well run.

One risk is that the firm’s operations are centred on just one mine. So if political or operational problems stopped mining, revenue could crumble.

However, Griffin shares currently look cheap on a 2018 forecast P/E of 7.7. There’s also a forecast maiden dividend yield of 0.7%. This yield is expected to rise to 2.4% in 2019, giving long-term shareholders the prospect of a growing income.

This stock isn’t without risk, but it may be worth a closer look if you specialise in mining shares.

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Certainly, the risks from declining commodity prices remain. The global economy’s performance could come under pressure and lead to a general slowdown. But with wide margins of safety, these two mining companies appear to be worth a closer look right now.

Improving performance

Reporting on Tuesday was zinc/gold miner Griffin Mining (LSE: GFM). The China-focused operator delivered a 91% increase in revenue, with its operating profit of $64m 319% higher than in the previous year. It delivered record production in 2017, while cash generated from operations of $77.4m enabled all bank loans to be repaid. It also allowed the company to invest $13.3m in further development of the Caijiaying mine, as well as in exploration and equipment purchases.

Looking ahead, Griffin Mining is expected to deliver a modest 3% rise in earnings in the current financial year. While there are mining stocks with higher forecast growth rates, the company’s price-to-earnings (P/E) ratio of around 9 suggests that it could offer good value for money. That’s especially the case since demand for gold miners could increase if global inflation expectations continue to rise.

Of course, the company is relatively small and seems to lack the diversity of some of its sector peers. Therefore it may mean a relatively risky investment opportunity. But with strong progress being made in its operational and financial performance, its low valuation suggests that it could deliver high rewards in the long run.

Turnaround potential

Also offering upside potential within the sector is gold miner Acacia (LSE: ACA). The company has experienced a hugely challenging period, with an export ban in Tanzania hurting its financial performance. For example, in the last financial year the company’s bottom line moved into the red despite a relatively strong year for the gold price.

Looking ahead, there could be further uncertainty for the business. The trading conditions it faces may remain tough and while it seems to have a solid strategy, it could experience significant volatility over the medium term.

However, investors may have factored in potential challenges for the business. Acacia trades on a forward P/E ratio of around 8. And with its bottom line due to return to the black in the current year, investor sentiment could improve – especially since earnings growth of 10% is forecast for the 2019 financial year.

With the gold price having the potential to rise due to a mix of uncertainty in the prospects for the global economy and the recent volatility in riskier assets such as shares, now could be the perfect time to buy gold miners. Acacia may be at the riskier end of the investment spectrum, but its potential rewards could be high.

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Oil price potential

The oil price has the potential to move higher in the long run, since demand could increase. For example, the use of oil in transportation is unlikely to fall significantly in the coming years. Certainly, electric cars pose a threat in the very long term, but due to costs and logistics, petrol and diesel cars look set to remain the dominant fuels for automotive transport – across the emerging world in particular.

Alongside this, a desire for many oil-producing nations (such as OPEC) to limit supply could lead to a reduction in the glut which has prevailed in recent years. This could help to push the price of oil higher, which would clearly be positive news for Tullow Oil. Not only would it increase the company’s profitability, it may also mean investor sentiment towards the company improves.

Company changes

In response to the current low oil price environment, Tullow is making several changes to its business model. For example, it has raised capital in order to reduce its debt levels, intended to create a more sustainable business with lower risk, since the oil price may remain low over the short term. Furthermore, it has increased production levels as it seeks to generate higher cash flow. This may lead to a rising dividend in future which could be a positive catalyst on the company’s share price.

With the stock trading on a forward price-to-earnings (P/E) ratio of 16, it appears to offer good value for money at the present time. Certainly, there are considerable risks facing the business, including that low oil price in the near term, but given its outlook it could be a strong performer in the long run.

Improving performance

Also offering long term share price growth potential is zinc gold miner Griffin Mining (LSE: GFM). The company released an interim update on Thursday for the six months to 30 June. Its revenue increased from $20.8m in the first half of last year to $52.3m in the current year. This allowed it to move into net profit, swinging to $15.8m from a loss of $4.1m last year.

In response to the company’s improved financial performance, its shares increased by around 5% following the news release. Looking ahead, it’s expected to grow profit further this year, and this puts it on a forward price-to-earnings (P/E) ratio of just 7.4. This suggests that while it remains a relatively risky investment prospect, the potential rewards are also high for the long run.

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Improving performance

Reporting on Tuesday was Oil & Gas exploration and production company Nostrum (LSE: NOG). It made steady progress in an operational capacity, with average production of 48,743 barrels of oil equivalent per day (boepd). With oil prices averaging over $50 per barrel in the first quarter of the year, this means revenues have risen to in excess of $110m. This is substantially higher than the $73.9m from the first quarter of the previous year.

Nostrum expects to reduce its exported crude oil transportation costs in the coming weeks due to the KTO pipeline connection almost being complete. It is also making steady progress on construction of the third unit of the Gas Treatment Facility, which could help to lift investor sentiment over the short run.

Looking ahead, Nostrum is forecast to move from loss into profit in the current year. It is then expected to record a rise in its bottom line of 212% next year. This puts it on a forward price-to-earnings (P/E) ratio of just 8.1, which indicates that it offers excellent value for money. Certainly, there is scope for volatility in the price of oil during the coming months, but with a wide margin of safety Nostrum seems to be a worthwhile investment opportunity.

Low valuation

The investment prospects for China-focused zinc/gold mine developer Griffin Mining (LSE: GFM) could also be relatively bright. While it lacks the size and scale of other resources companies and therefore may be relatively high risk, its low valuation indicates that now could be the right time to buy for the long run.

Despite having risen by over 100% in the last year, the company’s shares continue to trade on a relatively enticing valuation. A  P/E ratio of just 7.7 indicates that they have a wide margin of safety which could help to make up for their lack of regional diversity when compared to other natural resources stocks.

Griffin Mining may not have a diversified asset base, but its focus on developing a mine with gold, lead, zinc and silver deposits means it has at least some diversity. Precious metals in particular could perform relatively well this year if, as expected, inflation in the US increases and causes global inflation levels to rise. Griffin Mining could benefit from this, as well as the potential for higher uncertainty from mounting political risks in Europe. Therefore, while a relatively high risk, it could be worthy of a closer look for less risk-averse investors.

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AstraZeneca

Since the release of AstraZeneca’s Q1 results on 24 April, we’ve seen a mammoth buy from the FTSE 100 firm’s finance director, Marc Dunoyer, and a stream of significant purchases by multiple non-executives. The details of the dealings are shown in the table below.

Finance director Dunoyer looks to have got a nice price at 4,397p, because the shares are trading at 4,550p, as I write. Nevertheless, 4,555p remains lower than the prices some of the directors were prepared to pay.

The price also remains below the 52-week high of 4,863p reached last year, ahead of AstraZeneca’s board rejecting an indicative offer for the company of 5,500p a share from US giant Pfizer.

AstraZeneca currently trades on 16.4x forward earnings — about in line with the wider market — and offers an above-average yield of 4.1%. The company’s increasingly robust drugs pipeline could begin to drive profits strongly higher in a couple of years, and the current valuation looks reasonably attractive to me.

International Personal Finance

Provident Financial demerged its international home credit operations in 2007 as International Personal Finance. IPF, now a FTSE 250 company in its own right, operates mainly in Central and Eastern Europe, and is growing strongly.

Last week, new chairman Dan O’Connor made a maiden purchase of 41,500 shares at 481.4p a pop for an outlay of just shy of £200,000.

IPF’s shares are trading at 503p, as I write, but remain below their 52-week high of 631p, and are on an undemanding multiple of 13x expected earnings for the current year, falling to 11.5x next year. IPF has pursued a successful strategy of measured and well-researched expansion into new territories, and could complement a UK lender — such as original parent Provident — in a diversified portfolio.

Griffin Mining

Zinc and gold miner Griffin Mining has been operating successfully in China since 1997, and has been listed on the AIM market since then. Griffin’s 2014 performance was hit by a three-month suspension of processing activities to facilitate an upgrade. Nevertheless, the company remained profitable for a 10th consecutive year.

Earlier this month, non-executive director Adam Usdan, who joined Griffin in March last year, made his biggest purchase to date. Usdan splashed out £400,000, buying a million shares at 40p a time. He now has a 17% stake in Griffin, through a personal shareholding and via his hedge fund Trellus.

Of course, small miners in far-flung places are higher-risk investments. However, Griffin’s history in China,  a profit-making track record and its growth prospects all suggest that  it could be one of the better bets among this class of company. Forward earnings multiples (9x this year’s earnings, falling to 5x next year’s) and a discount to net asset value (last reported NAV/share was $0.83) give a margin of safety and good upside potential.

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