The performance of the Sirius Minerals (LSE: SXX) share price in the first half of 2019 has been hugely disappointing. The company’s shares have declined from 21p to 15p, which is a fall of almost 30%.
Looking ahead, further falls could be ahead for the stock in the near term. However, its long-term prospects continue to suggest it could deliver high returns.
Of course, it’s not the only FTSE 250-listed mining share which could generate capital growth over the long run. Precious metals miner Hochschild (LSE: HOC) could also provide investors with an appealing risk/reward ratio at the present time.
Low valuation
With the gold price reaching a six-year high, the financial outlook for gold miner Hochschild could be set to improve. Investors are becoming increasingly cautious about the prospects for the world economy, with an escalation of a global trade war leading to increasing demand for defensive assets. With gold being seen as a store of wealth, it would be unsurprising for its price to move higher.
Furthermore, US interest rate rises seem to have come to an end – in the short term at least. There is even the prospect of an interest rate cut, which could increase demand for gold as interest-producing assets may become less appealing on a relative basis.
With Hochschild trading on a price-to-earnings growth (PEG) ratio of just 0.2, it seems to offer a wide margin of safety. Although the prospects for the silver price may be less positive than for gold at the present time, and the company being highly dependent on precious metals prices, its risk/reward ratio could be enticing for long-term investors who can live with above-average volatility.
Long-term potential
As mentioned, the Sirius Minerals share price has endured a tough period in recent months. Due to the uncertainty which still surrounds its project, notably in terms of the potential for further drives to raise funds from investors, its share price could remain volatile in the near term.
However, in the long run, the company continues to offer significant growth potential. Its recent updates have shown that the project is progressing as planned, with several deals signed to supply its POLY4 fertiliser to a variety of markets over the long term. As such, the potential catalysts that could lift its share price over the coming years appear to remain in place.
As with any major project that is still a number of years away from completion, and that requires significant investment in order to reach that point, risks are high. However, for long-term investors who are able to buy the stock as part of a diverse portfolio of shares, Sirius Minerals could offer high rewards if it is able to deliver on its strategy.
Although further falls in its share price cannot be ruled out in the near term even though it trades at its lowest level in over three years, over the long run the company’s appeal relative to other mining stocks could be high.