Shares in Hochschild Mining (LSE: HOC) have risen by over 6% today, as investor sentiment in the wider resources sector improves. This takes Hochschild’s share price rise since the turn of the year to 43%, as the market becomes more optimistic regarding the prospects for precious metals producers. And while Hochschild has historically been a predominantly silver miner, it also produced over 100,000 ounces of gold last year.
Going for gold
The popularity of gold could increase over the coming months. That’s because the prospects for a US interest rate rise are fading, since there are major fears surrounding the prospects for the global economy. With a lack of interest rate rises, gold should deliver impressive price performance on a relative basis since it has historically moved inversely to interest rates. And with investor uncertainty being high, gold could represent a relatively safe place to invest.
With Hochschild trading on a forward price to earnings (P/E) ratio of over 80, it appears as though its expected return to profitability in 2016 is already adequately priced in. Certainly, its shares could move higher, but with other gold and silver miners offering superior value for money, there appear to be better options elsewhere.
Worse to come
Also rising today are shares in Enquest (LSE: ENQ), with the oil and gas company reporting an increase in its valuation of over 7%. Despite this, Enquest is still down by 32% since the turn of the year, as a falling oil price has weighed heavily on investor sentiment towards the company. Clearly, its future prospects are closely linked to the price of oil and with a glut of supply showing little sign of being reduced in the short run there is a realistic chance that things could get worse before they get better for the company’s investors.
Although Enquest has been able to reduce its cost per barrel in recent months, it has also lost out on the expiry of pricing hedges and this is likely to put its bottom line under a degree of pressure. With the company’s balance sheet being highly leveraged, it may be prudent to look elsewhere for companies that have higher profitability and lower balance sheet risk.
Further to go
Meanwhile, shares in Empyrean Energy (LSE: EME) are up by 8% today, also on the back of rising investor sentiment for the wider resources sector. This takes its gain for 2016 to 27% and much of this is due to the company selling off its interest in the Sugarloaf AMI project for $61.5m in cash, plus the potential for a further $10m based on future oil prices.
This disposal seems to make sense due to the cost involved in developing the asset. Although Empyrean’s share price will be highly dependent upon the oil price moving forward, it remains highly profitable and has been so in each of the last four years. With pre-tax profit due to be £4.5m in the current financial year, Empyrean may be of interest for less risk averse investors, with its shares having the potential to continue their recent gains.