Shares in oil exploration company Falkland Oil & Gas (LSE: FOGL) are up by almost 4% today after the company announced that the Isobel-2 well has been spudded. This is the final well in the company’s 2015 drilling campaign, with it owning a 40% stake in the prospect and it provides the potential for further oil discovery following the success which was reported earlier in the year at the Isobel Deep well.
Clearly, there is a significant amount of uncertainty surrounding the wider oil sector and, with the outlook for the oil price being relatively downbeat, small explorers such as Falkland Oil & Gas may find that investor sentiment remains cautious. Of course, the company has upbeat prospects and, although its drilling progress has been rather mixed in 2015 and has included costly delays, it remains well-positioned to execute its overall strategy. As such, it could prove to be a sound long term buy, although a relatively high degree of volatility seems likely in the short run.
Also reporting good news today is Rare Earth Minerals (LSE: REM), with its mineral resource estimate having increased significantly. In fact, the company’s indicated mineral resources at its Sonora lithium project have increased by over 300% from 1.1m tonnes to over 5m tonnes of lithium carbonate equivalent. This has a very positive impact on mine planning and also on the project’s life of mine, with it allowing Rare Earth Minerals to focus on the long term as well as on higher grade mineral resources.
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Although positive, the news has been met with dampened enthusiasm from the market, with Rare Earth Minerals’ shares being up just 1% thus far today. And, with them having fallen by 14% this year, it has been a disappointing period despite the positive news flow from the deal to supply car manufacturer Tesla. Of course, the long term potential for lithium is strong, with it being a commodity which is increasing in popularity as battery power becomes more prevalent. And, while Rare Earth Minerals is still a relatively high risk means of accessing that growth potential, it could prove to be a sound long term buy – especially after today’s positive update.
Meanwhile, the world’s largest silver producer Fresnillo (LSE: FRES) appears to be a very sound purchase at the present time. Certainly, the price of silver has endured a major downward spiral in recent years and this has hurt the profitability of the entire sector. However, Fresnillo’s bottom line has remained firmly in the black in recent years and, looking ahead, the company is forecast to increase its earnings by 155% this year and by a further 85% next year.
This puts Fresnillo on a price to earnings growth (PEG) ratio of just 0.4, which indicates that there is a wide margin of safety on offer. In other words, even if the price of silver falls or the company’s profitability growth rate is downgraded, its shares could still make strong gains. As such, and while smaller resources companies do hold considerable interest for less risk averse investors, their larger peers such as Fresnillo appear to be even more appealing buys.
