Why Highland Gold Mining Ltd is a better commodities pick than Hurricane Energy plc

Precious metals play Highland Gold Mining (LSE: HGM) took a further step away from recent record highs after a lukewarm reception to its full-year numbers, the stock last dealing 5% lower on Monday.

It said that although total production dipped fractionally in 2016 — to 261.2m ounces from 262.5m ounces in 2015 — a backdrop of bubbly bullion prices helped revenues shoot 11% higher to £305.9m.

As a result, Highland Gold saw operating profit glide to £69.4m from £22.4m the year before.

Gold buzz

However, the release did not contain anything nasty to spook stock pickers despite today’s share price descent. Indeed, predictions that group output would remain stable within the 255m-265m bracket were in line with the company’s previous updates.

Instead, I reckon today’s weakness represents mere profit-taking following recent bouts of solid buying activity. And I believe Highland Gold could be in store for further northward manoeuvres as gold values appear to be built on firm foundations.

The store-of-value metal reached new five-month tops late last week around the $1,270 per ounce marker, with demand boosted by the fallout from President Trump’s airstrikes on Syria and consequent fears that a new Cold War is on the horizon.

There are plenty of other geopolitical factors that could keep gold values ticking higher, too. On top of concerns surrounding Britain’s withdrawal from the EU and upcoming presidential elections in Germany and France giving gold support, macroeconomic jitters took a step further following last week’s disappointing non-farm payrolls numbers from the States.

And Highland Gold is seeking to keep revenues moving upwards through expansion across its asset base. The digger is aiming to extend the life of its Mnogovershinnoye asset in Russia, and is also taking steps to expand output at its Novo project in the country, for example.

Stormy weather on the horizon?

Hurricane Energy (LSE: HUR) has, like Highland Gold, seen its share price march to all-time peaks in recent weeks, the oil explorer boosted further by promising testing  news.

On Friday, Hurricane upgraded its recoverable resource estimates for its Lancaster field in the North Sea — the company now puts the figure at a mammoth 593m barrels, a massive upgrade from its prior estimate of 200m barrels.

And last week’s update followed news in late March that, following drilling work at its Halifax well, it proclaimed the Greater Lancaster Area as “the largest undeveloped discovery on the UK Continental Shelf.”

The uncertain outlook for oil prices has long caused me to take a cautious view of the entire fossil fuels sector, with a steady ramp-up in global supply threatening to keep the market oversupplied long into the future.

And Hurricane carries an extra layer of risk, of course, its focus on the cash-heavy North Sea region putting massive strain on the explorer’s balance sheet.

The road from resource discovery to delivering sizeable quantities of material is often a frustrating and unpredictable one, and especially so for smaller operators working on tight budgets and unforgiving operational timeframes. 

I would much rather buy into Highland Gold rather than Hurricane Energy right now.