Shares in Petra Diamonds (LSE: PDL) have soared by as much as 12% today after positive news regarding its capital position. Petra’s group of lenders has agreed to waive the measurements of the two covenant tests related to EBITDA for the 2015 financial year. Furthermore, Petra’s lenders have stated that they remain supportive of the company’s expansion plans and current strategy.
This is very positive news for Petra and, with the company making encouraging progress with its production as well as cost control, its future appears to be relatively bright. Furthermore, Petra is focused on undiluted ore, with expansion programmes at both Cullinan and Finsch remaining on-track and, with favourable currency changes being taken into account, it is well financed for the completion of its capital expansion programme.
In addition, Petra has also announced the purchase of an interest in Kimberley Mines in South Africa from De Beers. This should provide the company with an improved long term outlook and, looking ahead, Petra’s price to earnings (P/E) ratio of 12.9 indicates that there is upward rerating potential. Certainly, there is still some way to go regarding the implementation of its long term strategy, but for less risk averse investors it could prove to be a sound, albeit volatile, buy.
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Meanwhile, Rio Tinto (LSE: RIO) also appears to be a worthy purchase at the present time, with its financial standing being superior to the vast majority of its sector peers. For example, in its half year results the company reported free cash flow of $4.4bn, which comfortably covered sustaining capital expenditure of $1.2bn and a dividend of $2.2bn. And, with Rio Tinto having a modest debt to equity ratio of 50%, it appears to be in a strong position to not only survive the current slowdown in the mining sector, but emerge as a beneficiary relative to its peers.
Furthermore, Rio Tinto currently yields a whopping 6.7% and this puts it among the highest yielding stock in the FTSE 100. Clearly, a dividend cut could be on the cards, but the company’s dividend coverage ratio of 1.2 indicates that any fall in shareholder payouts may be less than is currently being priced in by the market. As such, Rio Tinto’s shares may post surprisingly strong gains over the medium to long term.
Also offering potential upside is Polymetal (LSE: POLY), with its shares having fallen by 10% in the last year. Although this fall is not without good reason, with the company’s bottom line expected to decline by 10% this year, Polymetal is expected to return to positive growth next year with a rise in net profit of 6% being pencilled in by the market.
This puts Polymetal on a price to earnings growth (PEG) ratio of only 1.8, which indicates that its shares offer growth at a very reasonable price. And, with the price of gold having the potential to rise if an uncertain outlook for the global economy continues, Polymetal could be set for strong share price performance in 2016 and beyond.
