Metals prices have seen something of a resurgence of late, leading to the shares of Chilean copper miner Antofagasta (LSE: ANTO) soaring 55% from their January low of 346p to close yesterday at 537p.
Not pretty
However, the shares have dipped 9% to 487p, at the time of writing, following the release of the company’s 2015 results this morning. The headline numbers weren’t pretty. Revenue dived 34%, with realised copper prices falling 24% and volumes down by 10%. Net earnings from continuing operations collapsed to just $5.5m from $422m, and the company said it would not be paying a final dividend.
Of course, 2015 was a challenging year for miners. Nevertheless, Antofagasta remains a well-managed business in a cyclical industry. The company has a strong balance sheet, which enabled it to purchase a 50% stake in a high-quality copper mine last year, and is open to taking advantage of further opportunities that management expects the downturn to create.
Earnings valuations mean little at this stage of the cycle. Antofagasta should emerge from the downturn as a stronger company than ever, and, sooner or later, see its shares exceed their previous all-time high of over 1,500p.
Vulnerable
The price of oil, like the price of metals, has seen a mini-recovery since the lows of earlier this year. However, it hasn’t helped Kurdistan-based oil company Gulf Keystone Petroleum (LSE: GKP), whose shares continue to trade at a depressed level of 12p. Gulf Keystone’s problem is that the Kurdistan Regional Government (KRG) is strapped for cash to pay the company, while the company has massive debts to service.
Gulf Keystone had cash of $58m on 4 March, following a late payment from the KRG of $12m net for January. The company must have cash in hand of $32.5m to avoid breaching a covenant on its bonds, and has to make an interest payment to bondholders of $26.4m on 18 April. Given the running rate of operating cash burn, Gulf Keystone will need to receive at least $15m from the KRG before 18 April to avoid breaching its covenant when it makes the interest payment.
If the KRG doesn’t cough up enough, Gulf Keystone’s bondholders will probably play ball for the time being. But, with a further interest payment of $26.4m due in October, and a tranche of $250m bonds maturing next spring, buying Gulf Keystone’s equity today puts you in about as vulnerable a position as a shareholder can be.
Long road
Sirius Minerals (LSE: SXX) did a great job last year in steering its York Potash Project through the planning process, given the sensitivity and complexity of a deep mine beneath the North York Moors national park and the associated transportation infrastructure and export facilities.
After a buoyant 2015, Sirius’s shares declined early this year, with the general market weakness and an announcement from the company of a delay in completing a definitive feasibility study, due to the large amount of complex information involved. However, Sirius announced today that it expects to release the findings on Thursday, with chief executive Chris Fraser commenting: “I look forward to detailing the world class and robust nature of our polyhalite project.“
At a current price of 20.75p, Sirius’s shares have almost doubled in the space of a few weeks. The company’s valuation is getting on for £500m. There’s still a long road of financing and construction ahead, but for patient and less risk-averse investors the prospect of an equity stake in an asset with an expected life of over 100 years could be appealing.