The performance of resources companies this year has been horrific, with investor sentiment declining, share prices collapsing and the financial performance of industry participants being almost entirely disappointing. Looking ahead, many investors can see no reason to cheer when it comes to resources companies, with the risk of losses seemingly outweighing the potential returns at the present time.
One stock which has fared badly even for a resources company is Glencore (LSE: GLEN). Its $30bn debt levels have been a major source of concern for the market, with Glencore responding by undertaking a series of measures to try and shore up investor confidence in its balance sheet. These included raising additional capital and cutting dividends, which have seemingly served to make investors even more concerned about the company’s long term future. As such, its shares fell from 300p at the start of the year to just 74p by the end of September: a decline of 77% in just nine months.
Since then, though, Glencore’s share price has almost doubled, with it rising on the back of a soaring wider mining sector. Clearly, it is likely to remain volatile in the short run and, to a large extent, its future remains highly dependent upon the price of commodities. And, while its shares are undoubtedly exceptionally cheap, the same can be said for a number of commodity stocks which, in many cases, have less debt, simpler business models and, as a result, may be better buys than Glencore at the present time.
Premier Oil (LSE: PMO), meanwhile, has also posted major losses in recent months, with its shares being down 42% since the turn of the year. It has suffered from doubts surrounding its North Sea operations, with costs in that region often being less competitive than in other parts of the world. And, with there being a much greater focus on efficiencies and costs while the oil price is low, Premier Oil may be forced to make further write downs to its asset base moving forward.
This, though, seems to be adequately priced in to its current valuation. For example, Premier Oil trades on a price to book value (P/B) ratio of just 0.29. This indicates that it has a relatively wide margin of safety and, with it due to return to profitability as soon as next year, investor sentiment could pick up in the coming months which makes it a risky but relatively appealing buy at the present time.
Similarly, Amur Minerals (LSE: AMUR) also has considerable long term growth potential. While there are numerous question marks surrounding how it will turn its Kun-Manie prospect into a fully functioning mine, with logistics and financing being two key considerations, it seems to be in a healthy position ahead of the launch of its Detailed Study Phase of project development.
A key reason for this is the equity swap agreement which was agreed with Lanstead Capital and which came to an end recently. This provided Amur Minerals with the necessary capital to progress through to the award of its production licence in June and, with such huge long term potential to become a highly profitable nickel producer owing to the 830,000 nickel equivalent tonnes at its main prospect, it could prove to be a sound, albeit speculative, investment at the present time.