Although commodity values have cooled more recently, many of the Footsie’s drillers and diggers have punched considerable gains since the start of April thanks to previous price advances.
So as we now enter the latter half of Q2, it’s a good time to assess whether recent risers Sirius Minerals (LSE: SXX), Tullow Oil (LSE: TLW) and Centamin (LSE: CEY) can look forward to further gains in the near term and beyond.
Potash power
Investor appetite for Sirius Minerals has shaken wildly in recent weeks following a spate of operational updates concerning its gigantic North Yorkshire polyhalite project.
The potash play set the market alight in late March after a definitive feasibility study revealed that the asset could have a net present value of $27bn on first production. But Sirius Minerals’ share price nosedived once investors digested news that $3.56bn would be needed to get the project up-and-running.
The stock has resumed its uptrend since the start of this quarter however, even though Sirius still has significant milestones to reach on financing. And of course the digger faces the usual risks associated with the business of minerals exploration and production, not to mention the prospect of prolonged weakness in potash values.
While fresh operational and funding updates could fuel further share price advances, the opposite is also true, particularly given the recent breakneck rise. I believe the company carries far too much risk at present.
Crude concerns
Shares in Tullow Oil have moved higher in lockstep with a resurgent crude price. Indeed, the driller stepped skywards again on Monday as the Brent benchmark moved to six-month peaks around $49 per barrel.
However, I reckon the oil market’s poor supply/demand fundamentals fails to support such a heady rise, leaving the likes of Tullow Oil in danger of a sharp correction.
Black gold prices have bumped higher today after Goldman Sachs advised that recent output disruptions have pushed the oil market back into deficit. But the broker expects the supply overhang to recur during the first half of 2017, and also slashed its WTI benchmark forecasts for next year to $52.50 per barrel from $57.50 to reflect this.
Maiden oil at its colossal TEN project in Ghana is expected to blast Tullow back into the black with earnings of 5.1 US cents per share. But I believe a consequent P/E rating of 116.8 times doesn’t reflect the firm’s vast risk profile, and reckon this leaves plenty of space for a significant share price retracement.
Golden opportunity?
Arguably gold producer Centamin has more compelling investment appeal than either Sirius or Tullow.
Gold doesn’t suffer the same supply/demand dynamics looming over other major commodity markets. Meanwhile, wider concerns over the health of the global economy could propel safe-haven buying of gold still higher — the hard currency touched $1,300 per ounce just last week.
But on the downside, the prospect of a resurgent US dollar could put gold values — and with it Centamin’s share price — under fresh pressure. And persistent weakness in Chinese and Indian jewellery and bar demand could put a further spanner in the works.
Centamin is expected to enjoy a 34% earnings upswing in 2016, resulting in a decent ‘paper’ valuation of 13.7 times. But there’s still plenty of mud that could send precious metals prices, and consequently Centamin’s share price, shuttling lower again, in my opinion.