Why I'd buy this commodities stock over Sirius Minerals plc
A perky outlook for the precious metals suite leads me to repeat my bullish take on Russia-focused gold miner Petropavlovsk (LSE: POG).
Boosted by the political chaos still growing in Washington, gold prices hurdled back above $1,250 per ounce again last week as news emerged that President Trump had urged sacked FBI head James Comey to curb investigations into contacts between his officials and their Russian counterparts.
And as the inquiry into Trump's relationship with the Kremlin gathers steam, I reckon there could be further gains in store.
On the up
Petropavlovsk has seen its share price track broad movements in the bullion price, the stock reaching its highest since November last month. And while investor appetite has been more subdued recently, I reckon the gold giant remains a compelling pick.
The Russian digger advised in late April that an improved gold price in 2016 helped underlying EBITDA shoot 16% higher, to $200.1m. But resurgent metal values were not the sole driver of this as cost-cutting initiatives also paid off.
Total costs fell 12% last year to $660 per ounce, and Petropavlovsk expects for further improvement with cost guidance of between $600 and $700 per ounce this year.
And bulging production gives further room for encouragement, the company also announcing last month that gold output in January-March was 118,046 ounces, up 18% from the prior three months.
Petropavlovsk affirmed its full-year volume target of between 420,000 and 460,000 ounces, although it suggested these fine Q1 results could see it hit the top end of this target. An upgrade to current estimates at the half-year could well be on the table.
Solid forecasts
Having finally snapped back into earnings growth last year with earnings per share of 1 cent from losses of 7 cents in 2015, the City expects the miner to keep the momentum going with a 135% rise in 2017. And a further 22% advance is chalked in for next year.
These projections leave it dealing far too cheaply, in my opinion. It changes hands on a P/E ratio of just 4.1 times, well below the widely-regarded bargain benchmark of 10 times.
Despite the boardroom strife that saw founder Peter Hambro vacate his role as chairman, I reckon the firm is worthy of serious attention at current price levels.
Potash gamble
Of course the business of pulling raw materials out of the ground or sea is always fraught with danger.
But Petropavlovsk has proven itself a big player in the mining world, the same cannot be said for Sirius Minerals (LSE: SXX). The potash-wannabe is not expected to produce maiden output at its polyhalite asset in northern England until well into the 2020s.
Its potash goldmine carries shedloads of potential and Sirius has previously said that the project has the ability to make it "aworld leader in the fertiliser industry." But for the time being, potential is all the business has to show investors.
In the meantime, it has plenty of hard graft ahead to get first material out of the ground, not to mention rising costs as the necessary infrastructure is put in place. Meanwhile, the exact timing, as well as the size, of future revenues is very much an estimate and will remain so for some time.
In my opinion Petropavlovsk offers a much more compelling investment case for those seeking exposure to the mining sector, and particularly at recent share prices.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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