While the mining sector has been a major disappointment in recent months, with the price of numerous commodities falling heavily, low valuations could offer opportunity for long-term investors to benefit. Certainly, volatility may be above the index average — but capital gains could be, too. Are these three stocks the perfect way for you to benefit?
Centamin
Today’s results from Centamin (LSE: CEY) have been warmly received by the market, with the company’s share price being up 2.6% at the time of writing. A key reason for this is a jump in profitability, with Centamin reporting a pre-tax profit of $29m versus $21m for the same quarter in the previous year. A key reason for this is a substantial increase in production, with gold production being 46% higher at 108,000 ounces for the quarter.
And, looking ahead, Centamin appears to be on course for a highly profitable year. That’s because it is forecasting production of 420,000 ounces of gold for the full-year, with a cash cost of $700 per ounce. With the gold price currently standing at around $1200 per ounce, there is considerable headroom to generate a profit. And, with Centamin trading on a price to earnings growth (PEG) ratio of just 0.4, there appears to be plenty of scope for its investors to make capital gains, too.
Sirius Minerals
While Centamin is a fully fledged mining company with relatively stable operations, Sirius Minerals (LSE: SXX) is the complete opposite. It has no revenue and is seeking to locate a potash mine near York, with the planning approvals process having delivered upbeat news flow of late. This has caused the company’s share price to rise by 36% since the turn of the year, as investors have begun to believe that the project really could get off the ground.
However, while there has been positive news flow of late, it is not long ago that there were delays to the process. And, looking ahead, there are likely to be more, since such a vast and ambitious project rarely completes without unknown challenges appearing. Furthermore, with financing for the project yet to be confirmed, there remain a number of sizeable hurdles ahead which mean that Sirius Minerals is a gamble rather than an investment. As such, the risk/reward opportunity remains unfavourable – especially after such strong share price performance already this year.
Anglo American
With such major share price falls over the last year, a number of mining stocks are now very appealing as income plays. One prime example is Anglo American (LSE: AAL), which currently yields a very enticing 4.9% having seen 30% wiped off its valuation over the last year. And, while things could get worse before they get better, now seems to be a great time to buy a slice of the diversified mining company.
A key reason for this is that its valuation is at a low ebb. For example, Anglo American trades on a price to book (P/B) ratio of just 0.7 and, while impairments to its asset base are a very real threat, its current share price appears to include a wide margin of safety that takes this into account. As such, for longer term investors, Anglo American could prove to be a great buy right now.