Today I want to explain why I think sellers of this family-owned firm have acted too fast. I also want to take a look at a small-cap mining services firm which I rate as a potential buy.

Copper blues

The price of copper has fallen by about 20% so far this year. That’s not been good news for copper miners. A second concern is the risk of falling demand from China, if the Asian giant’s trade war with the US escalates.

There’s no way of knowing what will happen over the next year or two. But there’s a fairly widespread view among analysts that copper demand is likely to exceed supply from 2020, as demand from renewable energy and electric vehicles surges.

The best way to buy copper

For investors wanting a pure play on copper, I believe Antofagasta could be the best choice. This FTSE 100 firm is generally seen as a high quality, low-cost operator. In 2017, it generated an operating margin of 40% and return on capital employed of 15%. Both are decent figures.

Net cash costs were $1.52/lb during the first half of the year, compared to an average copper sale price of $3.00/lb.

Management has maintained its full-year guidance for net cash costs of $1.35/lb. This should leave plenty of room for profit, even if copper falls below its current level of $2.60/lb.

Antofagasta’s profits are helped by a strong balance sheet. Net debt was just $781m at the end of the half year. That’s just 0.3 times earnings before interest, tax, depreciation and amortisation (EBITDA). Very low indeed.

The shares now trade on 13.5 times forecast earnings, with a well-covered 3.2% dividend yield. I think this could be a rare opportunity to buy this respected miner at an attractive price.

Drilling from east to west

Africa-based drilling contractor Capital Drilling (LSE: CAPD) appears to be betting big on a mining boom in West Africa. The stock’s 9% fall today suggests that not all investors are convinced.

In its half-year results, Capital said that utilisation of its drilling fleet fell from 56% to 46% during the period, because it was busy moving drilling rigs from East to West Africa. Half-year revenue fell by 12.5% to $54.5m, compared to the same period last year.

This commitment to West Africa isn’t without risk. But Capital Drilling is an Africa specialist and has a good record of growth. Having started out in Tanzania in 2005, today the company has a fleet of 94 drilling rigs.

The company also has $3.4m of net cash on the balance sheet, despite the recent mining downturn. Profitability is generally good and operating margins have now returned to double-digits, hitting 10.6% during the first half.

Buy ahead of new growth

Capital Drilling’s management says that there’s a growing level of mining activity in West Africa. It signed three new contracts in the region during the first half and expects rig utilisation to improve during the second half of the year.

After today’s fall, this stock trades on 13 times forecast earnings with a well-supported 4% dividend yield. I believe now could be the right time to buy, ahead of the next stage of growth.

The post Retire wealthy: why I’d buy this FTSE 100 dividend growth stock today appeared first on The Twelfth Magpie.

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• Hot, hotter, hottest. Is it too late to consider these 3 FTSE 100 shares?

Roland Head has no position in any of the 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.

With that in mid, here are two companies which are highly dependent upon the outlook for commodity prices and the wider resources industry. Their valuations and dividend prospects suggest that they could offer investment appeal.

Improving outlook

Reporting on Thursday was drilling solutions company Capital Drilling (LSE: CAPD). The business released a Q1 update which showed a slight decrease in revenue of 1.8% versus the final quarter of 2017. This was in line with expectations, as the company seeks to redeploy idle rigs to high-growth West African markets. Substantial progress was made on this front, with a total of 12 rigs arriving in the region during the period.

The company has been able to maintain a strong balance sheet in recent months, and seems to be well-placed for an anticipated uplift in demand. In fact, it is expected to post a rise in earnings of 34% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.4, which suggests that it offers excellent value for money.

Furthermore, Capital Drilling is set to post a rise in dividends per share of around 25% over the next two years. This puts it on a forward dividend yield of almost 4%, and suggests that it could become an attractive income share. Certainly, it may offer less stability than many income stocks in other sectors, but with dividend payments set to be covered twice by profit, it could prove to be a sustainable level of payout.

High returns

Also offering strong income prospects within a similar space is Rio Tinto (LSE: RIO). The FTSE 100 company has enjoyed a more positive period over recent months, with demand for iron ore being relatively buoyant after a challenging period. This has helped the company to deliver two consecutive years of bottom-line growth, which is set to have a positive impact on its dividend payments.

At the present time, the company has a dividend yield of around 5.5%. Clearly, this is likely to fluctuate depending on commodity prices and how profitable the business will be in future years. But with the stock having what appears to be a solid balance sheet and strong cash flow, it could be a strong performer over the coming years.

Furthermore, Rio Tinto trades on a price-to-earnings (P/E) ratio of 13. Given its competitive advantage in terms of a low cost base relative to sector peers and its high-quality asset base, this could prove to be a low price to pay. As such, from an income investing and growth perspective, the company’s shares appear to be worth buying now for the long term.

The post 2 ultra-cheap dividend stocks I’d buy right now appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Rio Tinto. 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.

The stock’s dramatic decline has been caused by a run of flow test results which have disappointed the market. In December the group declared that a zone of Broadford Bridge-1 (BB-1) well was “likely not economically viable” after a flow test which produced only “traces” of oil.

More recently, flow testing a different section of BB-1 produced just 10-72 barrels of fluid per day over a 96-hour test period. The proportion of oil recovered rose to more than 30% during the tests. However, my view is that the short duration of the test and the low and inconsistent volumes of fluid aren’t encouraging.

There’s still hope

The company is now suggesting that parts of BB-1 may be blocked. A sidetrack well may need to be drilled so that the target intervals can be successfully tested. This may be the case, but the firm has already resorted to costly ‘death spiral financing’. Further fundraising could be difficult, in my view.

UK Oil & Gas may yet deliver results for patient investors. But the drilling results so far have been poor, or at best inconclusive. Holding on to this stock seems very risky to me. I’d sell, as the share price could still have further to fall.

One small-cap I’d buy

My second stock today sees us look at a different kind of drilling operation. Shares of Africa-focused mining drill rig contractor Capital Drilling (LSE: CAPD) were up by 8% at noon on Friday, after the firm reported a return to profit in 2017.

After commodity prices recover, as we saw in 2016, there is usually a further lag before new contracts start to be awarded. However, the firm reported eight new contracts in 2017 and now seems to be seeing the benefits of stronger market conditions.

Fleet size was almost unchanged last year, but fleet utilisation rose from 45% to 53%. Rates improved too, as the average revenue per operating rig rose by 10% to $194,000.

Revenue rose by 28% to $119.4m and the group moved back into the black with an operating profit of $11.7m. Earnings of 3.9 cents per share were in line with broker forecasts and shareholders will receive a total dividend for the year of 1.7 cents, giving a yield of about 3.1%.

There could be more to come

I believe this could be a good investment as the mining sector returns to growth. Capital Drilling reported a return on capital employed of 14% for 2017 and said that net cash rose from $0.6m to $4.9m. I expect cash generation to remain strong and support further dividend growth.

The only obvious risk is that some of the company’s main contracts are with gold mining firms in Tanzania. Some of these miners are currently engaged in a dispute with the country’s government. An unfavourable outcome could restrict future activity.

Despite this risk, I’d still be happy to consider Capital Drilling at under 40p per share. Although the forward price/earnings multiple of 17 may look pricey, I believe the group’s recovery is likely to have further to go.

The post Is UK Oil & Gas Investments plc’s 82% share price slump a great buying opportunity? appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the 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.

Driller killer

Capital Drilling (LSE: CAPD), which provides drilling teams and equipment to mining operations in emerging and developing markets, has plunged since its shares peaked at 66p in January. Today, it trades at just 40p. I reckon this could be a buying opportunity because despite recent slippage the company’s results have been heading in the right direction this year.

Investors were cheered by news in February that Capital Drilling had cut its after-tax net loss from $10.2m to $4.8m, with revenues rising 19% to $93.4m. Last month, its half-year trading update trailed a substantial 49% year-on-year rise in revenues to $62.3m, marking its strongest first half since 2013. However, that hasn’t stop the share price from trailing away in recent weeks.

Capital return

Capital Drilling, which has a market cap of £52.07m, published half-year results for the period to 30 June this morning, with the positive news that it has now swung back into profit. This was primarily driven by a 40% increase in fleet utilisation rates to 56% year-on-year, with the average revenue per operating rig jumping from $175,000 to $191,000. Revenues bounced 49.04% from $41.7m to $62.3m, while EBITDA was up 59% to $11.6m. Net profit after tax was $2.6m against a loss of $0.8m last time.

Executive chairman Jamie Boyton hailed its improved fleet utilisation rate, revenue and profit growth, which he said were underpinned by improved market conditions: “While the initial uplift in activity was associated with predominantly gold and speciality metals companies, this has broadened over H1 2017 with an improving outlook in industrial metals, particularly copper.” 

Gold mining

Boyton said that capital markets continue to underpin junior miners and explorers, supporting increased exploration and development expenditure, while the company was boosted by two new long-term contract wins at the Tasiast Mine in Mauritania and the Syama Mine in Mali. 

However, he warned that legislative changes in Tanzania are causing concern and uncertainty, which may impact exploration and investment in the country “for the foreseeable future.” Although this is consistent with previous guidance, this may explain the lukewarm market response to today’s otherwise upbeat results.

Cash flows

The share price is down 2.53% at time of writing, as the results fail to revive recent waning investor enthusiasm so far. However, I can see plenty of positives to dig into, with Boyton reporting the firm in excellent financial health and generating solid free cash flow. “This strong cash generation, coupled with enhanced discipline around capital expenditure, has seen the Group end the period with net cash of $3.3m,” he said.

Capital Drilling has declared an interim dividend of 0.5 cents per share for the first half, up from 1.5 cents last year. This is a small company in a risky area, but with City analysts forecasting a 19% rise in earnings per share in 2018 this falling knife looks tempting.

The post This falling knife could be well worth catching appeared first on The Twelfth Magpie.

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Harvey Jones 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.