Holding shares in resources companies over the last year has been a very challenging experience. That’s because the prices of a wide range of commodities; from oil to iron ore, have fallen significantly in price and led to profit declines, impairments and a fall in investor sentiment. And, looking ahead, there seems to be little hope among industry experts that the situation will dramatically change, which means that the present cloud over the resources space may continue to be present over the short to medium term.
Exceptional Performance
However, not all resources stocks have endured such a disappointing twelve months. For example, base metal exploration company, Amur Minerals (LSE: AMC), has seen its share price soar by an incredible 625% in the last year. In fact, in the last week it has risen by 120%, with the key reason for this being the award of a long-awaited production licence. It concerns the Kun Manie nickel-copper sulphide deposit in eastern Russia, with Amur set to recover a wide range of minerals from the site (including around 840,000 nickel tonnes equivalent) over what the company believes could be a fifteen year timeframe.
Clearly, the news is a game changer for Amur Minerals. And, while there are undoubtedly major risks such as the potential for a further decline in relations between Russia and the West, as well as the financial challenges that come with being a relatively small company, its long term future appears to be bright. Further, while Amur has a price to book (P/B) ratio of 4, improving sentiment is likely to push its share price higher over the short to medium term.
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Exceptional Value
Of course, for the likes of Tullow Oil (LSE: TLW) and Premier Oil (LSE: PMO), the last year has been hugely disappointing. Their share prices have fallen by 52% and 53% respectively, which has left investors in the companies with huge losses, but presents an opportunity for new investors to buy in at a very appealing price.
For example, Tullow Oil is expected to increase its bottom line by 49% next year and, when combined with its price to earnings (P/E) ratio of 36, equates to a price to earnings growth (PEG) ratio of just 0.7. This indicates that its shares could move significantly higher and appear to offer a very favourable risk/reward profile.
Similarly, Premier Oil is forecast to bounce back from last year’s losses to post a pretax profit of £56m this year. And, with it having a price to book (P/B) ratio of just 0.67, there appears to be significant upside potential – even if further asset writedowns take place in the next couple of years.
Looking Ahead
While the future outlook for the resources sector is somewhat downbeat, there is great potential and superb value on offer for longer term investors. And, while the likes of Amur, Tullow and Premier Oil are relatively risky, they could also deliver excellent rewards to investors who can live with above average volatility and greater uncertainty than that offered by the wider index. As such, now appears to be a good time to buy all three stocks.
