While mining companies have been hitting the headlines for all of the wrong reasons in 2015, for some it has been a relatively good year. For example, despite the price of gold reaching a five-year low earlier in the year, Centamin (LSE: CEY) has posted a rise in its share price of 3% since the turn of the year. That’s 5% greater than the FTSE 100’s return over the same time period and, looking ahead, Centamin could continue to beat the wider index.
The main reason for this is a planned increase in production which is due to push Centamin’s net profit higher by 21% next year. Certainly, the price of gold is likely to fluctuate, but with a major ramp-up in production it seems relatively likely that Centamin’s bottom line will be in a much healthier position than in the current year. And, with the company’s shares trading on a price to earnings growth (PEG) ratio of only 0.5, they offer significant upward rerating potential over the medium term, too.
In addition, 2016 could be a stronger year for gold than for other commodities. That’s because, while there is a supply/demand imbalance among commodities such as oil and iron ore, demand for gold could increase if the global growth outlook deteriorates. At a time when interest rate rises are just around the corner and Chinese growth rates are coming under pressure, gold mining stocks such as Centamin could buck the trend in 2016 and deliver strong growth figures.
Similarly, buying a slice of copper-focused Antofagasta (LSE: ANTO) also appears to be a shrewd move. It has reorganised its business and sold off its Chile water business for $1bn as it seeks to become more focused and more efficient in future years. And, looking ahead to next year Antofagasta is due to increase its earnings by 56%. This puts it on a PEG ratio of just 0.5, which indicates that its 33% fall in share price since the turn of the year could be clawed back over the medium term.
Furthermore, Antofagasta is expected to increase dividends per share by 54% next year. Although this puts it on a forward yield of just 1.6%, its dividends are due to be covered 2.6 times by profit next year and this indicates that further increases in shareholder payouts are on the horizon.
Also moving into 2016 with optimism is Sirius Minerals (LSE: SXX). Clearly, 2015 has been a hugely important year for the business since it has included approval for the planned potash mine in York. And, with crop studies of the polyhalite fertiliser which Sirius Minerals aims to produce indicating positive results, future demand for the company’s product seems likely to be relatively strong.
One reason for this is the time and financing it will require for Sirius to become a producer, rather than potential producer. In other words, the company apparently needs to raise over £1bn in order to build a mine and it will take a number of years to complete the project. As such, 2016 could be a challenging year for the company as, just as with the planning process, there may be delays and unforeseen problems.
Therefore, returns in 2016 may not be as high as expected by some investors, although for investors at the riskier end of the investment spectrum, Sirius Minerals could prove to be a strong long term buy, with its 71% rise in 2015 not factoring in its true long term potential.