Today I am looking at three firms making the headlines in Friday business.
Mining giant continues to sink
It comes as no surprise that investor appetite for diversified digger Anglo American (LSE: AAL) continues to languish along with commodity prices. The business was recently dealing 5.2% lower from Thursday’s close, taking its total share price reversal during the past 12 months to 70%.
Energy and metals prices have staged a modest rebound in end-of-week business, but this relief rally is not set to last in my opinion as eroding Chinese buying activity exacerbates bulky oversupply. Bellwether metal copper hit fresh six-year troughs below $4,500 per tonne this week, while oil remains perched precariously around the $45 per barrel marker.
And critically for Anglo American, conditions in the iron ore market, a segment from which a quarter of group revenues are generated, are predicted to remain tough. Fitch expects the steelmaking ingredient to average $50 per tonne in 2015 and 2016, with 145 million tonnes of new material — or 10% of the total seaborne market — expected through to 2017, Bloomberg reported.
Shares in Anglo American are clearly in freefall, and it is hard to see how the company can stage any kind of turnaround at the present time. The number crunchers expect the company to record earnings dips of 53% and 29% in 2015 and 2016 respectively, and although Anglo American deals on a cheap P/E rating of 8.3 times, the prospect of further earnings downgrades still makes the firm a highly-unattractive stock pick in my opinion.
Digger on the charge
Shares in dedicated iron ore play Beowulf Mining (LSE: BEM) have not suffered the same indifference in Friday trade, however, and the business was last 19.5% higher on the day.
The company has already seen its share price spike in recent days, galloping from around 3.3p per share just a fortnight ago to just over 7p earlier this week, the headiest for more than a year. Prices surged again today after Beowulf advised that pre-tax losses narrowed to £1.1m during January-September from £2.1m a year earlier.
Still, the business advised that it is still awaiting approval to start work at the Kallak North iron ore project in Sweden. And of course Beowulf’s earnings outlook remains hampered by the steady decline in metal prices. Given these factors, I believe the company remains a high-risk bet, and investors should expect further heavy volatility down the road.
Oil play shoots higher
Like Beowulf, fossil fuel specialists UK Oil & Gas (LSE: UKOG) have also bounced higher more recently, and the operator was last 18.5% higher from Thursday’s close. The company advised this week that it had completed a farm-in agreement to buy an extra 10% stake in the Weald Basin licence, PEDL143, and follows a similar deal to secure a 20% holding in the licence just last week.
The licence includes the Holmwood asset, where UK Oil & Gas is intending to start work at the Holmwood-1 exploration well next winter.
But like its resources peers discussed above, I believe UK Oil & Gas remains a risky pick owing to the huge uncertainty swirling across commodity markets, a situation that could undermine the firm’s long-term earnings prospects, not to mention the economic viability of its assets. And like Beowulf, I believe fresh share price swings can be expected, such is the danger of investing in small minerals and energy operators.
