Petra Diamonds announced that it would issue $600m in senior secured second lien notes due in 2022. The notes would be used to refinance the company’s existing $300m, 8.25% senior secured second lien notes due in 2020, the company advised, as well as to repay all drawn bank facilities and for general corporate purposes.

In addition to this, it announced plans to enter into new bank facilities to provide additional liquidity, which will remain undrawn on closing of the offering of the 2022 notes.

“The group’s new capital structure provides Petra with financial flexibility, with no drawn debt maturities until 2022,” Johan Dippenaar, the firm’s chief executive, commented.

“This represents a further step forward in the next phase of the Company’s development as the eight year capital expenditure programme at the Group’s flagship Finsch and Cullinan mines nears completion,” he added.

Production powers up

Petra is investing huge sums to create new caves at its two gigantic South African mines, and the company announced in January that Finsch’s Block 5 SLC and Cullinan’s C-Cut Phase 1 projects had churned out maiden production in recent months.

The company saw production during the six months to December shoot 24% higher as a result, to 2,015,087 carats.

With production powering higher the City expects Petra Diamonds to recover from two consecutive earnings dips in the period to June 2017, and a 38% bottom-line rise is currently pencilled-in. An extra 84% bounce is predicted for fiscal 2018.

Not only does a forward P/E ratio of 12.2 times for this year look extremely appealing on paper, but a PEG reading below one — at 0.3 — illustrates the digger’s great value relative to its projected growth trajectory.

With diamond prices showing tentative signs of recovery, many investors may well consider Petra a commodities play worth betting on at present.

In a hole

I do not believe the same sort of optimism can be extended to diversified digger BHP Billiton (LSE: BLT) however, the market outlook for its key commodities becoming ever-more worrisome.

BHP warned last month that iron ore prices, for example, are “likely to come under pressure in the short term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply.”

These factors have conspired to drive iron ore values — by far its largest market and responsible for four-tenths of group earnings — to their cheapest since mid-January in recent days. I expect further weakness to transpire as the heady price ascent of last year begins to unwind.

Square Mile brokers share my glass-half-empty take, and expect a projected 534% earnings explosion for the period to June 2017 to represent a mere flash in the pan, an 11% drop predicted for the following fiscal year.

Sure, a forward P/E ratio of 10.8 times at BHP may be cheaper than that of Petra. But I reckon the healthier state of the stones markets makes the latter a superior choice to its iron-producing peer.

The post Which of these commodities stocks is best following latest updates? appeared first on The Twelfth Magpie.

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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.

South Africa-based Petra and its small-cap peer Gem Diamonds (LSE: GMD) are working hard to take market share from sector heavyweight, De Beers. Both stocks look very affordable based on forecast earnings.

With the diamond market seeming to stabilise, is now the right time to buy into this sector?

A confident outlook?

Diamond production rose by 30% to 1,097,523 carats at Petra Diamonds during the three months to 30 September. The group received revenue of $94.7m during the period from the sale of 745,447 carats. Petra didn’t hold a diamond tender during the same period last year, so there’s no comparative figure.

Expansion programmes in the firm’s Cullinan and Finsch mines remain on track, and are starting to deliver results. Based on today’s figures, the group appears well positioned to hit broker forecasts for full-year sales of $576m.

Petra shares have risen by 64% over the last 12 months as diamond prices have recovered after production cuts by De Beers helped bring the market back into balance. Petra shares look decent value to me, on a forecast P/E of 10 and a prospective yield of 1.5%.

My one remaining concern is how quickly Petra will be able to reduce its debt levels. Net debt rose from $384m to $463m during Q1. The company says that this is within the expected range and that it should start to generate free cash flow during the second half of the current financial year. This implies that net debt should start to fall from January.

If it does, then Petra shares could still offer good value for growth investors. Earnings per share are expected to rise by 68% this year and by a further 50% in 2017/18. This puts the stock on a 2017/18 forecast P/E of just 7.

What about Gem Diamonds?

Petra’s valuation depends on future growth. By contrast, Gem Diamonds’ current valuation assumes that earnings will remain flat. That’s why the stock is currently trading on a forecast P/E of 7 for both 2016 and 2017.

The group’s short-term focus is on maximising cash generation and priority is being given to dividends. Shareholders should be rewarded with a 4% dividend yield this year. This dividend looks safe to me, given that Gem Diamonds ended the first half of 2016 with a net cash balance of $37m.

The downside of investing in Gem is that the growth potential of its Letšeng and Ghaghoo mines appears more limited than those of Petra.

Is now the time to invest?

Diamond mining stocks aren’t quite as cheap as they were one year ago. But I believe that both Gem Diamonds and Petra Diamonds have the potential to deliver decent returns for shareholders over the next few years.

Which stock is best may depend on your investing style. Growth investors are likely to opt for Petra, whereas contrarian value investors will probably be more attracted to Gem Diamonds.

Ultimately, it’s your choice.

The post Are diamonds an investor’s best friend? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Indeed, Brent’s dive back below the $40 per barrel marker typifies the precarious footing upon which most resources markets stand on. The ‘black gold’ price had risen by almost a quarter since mid-February, but fresh swathes of disappointing Chinese data — combined with news of still-rising supply levels — have raised fears that recent price gains may have been overdone.

OPEC warns again

As a result, oil leviathan Tullow Oil (LSE: TLW) has retreated sharply from the four-month highs punched earlier this month, a 10% decline in Tuesday trading dragging the stock back below the 200p marker. And this retreat has much further to go in my opinion.

Just yesterday oil cartel OPEC trimmed demand forecasts for its own crude for 2016. The organisation now expects off-take to register at 31.5m barrels per day, a 90,000-barrel reduction from its previous reading.

With production from outside the group proving more resilient at current prices than previously thought, OPEC now forecasts total excess supply of 760,000 barrels per day this year, up from the prior projection of 720,000.

Despite this backdrop, Tullow Oil is expected to flip from losses of 113.6 US cents per share in 2015 to earnings of 14.4 cents this year as production from its TEN asset in Ghana starts flowing during the summer.

But with the company dealing on a huge P/E rating of 50.3 times, I believe the business is far too risky at these prices given the prospect of severe revenues weakness in 2016 and beyond.

Dropping like a stone

Precious stones producer Stellar Diamonds (LSE: STEL) has also seen its share price take a battering in Tuesday business, the stock recently dealing 22% lower from the prior close.

The diamonds play announced that it had conditionally raised £600,000 through an equity issue, creating 6m new shares at 10p each. The monies will be used to fund a trial mining and sales exercise at its Baoulé project in Guinea, as well as draw up a maiden resource statement. Funds will also be used to support Stellar Diamonds’ mine licence application in Tongo.

The business also furnished the market with news of a disappointing diamond auction in Antwerp. While Stellar Diamonds raised an extra $300,000 through the sale, an average price of $91.05 per carat represented a significant markdown from the $156 per carat achieved at the last sale in May 2015.

 Stellar Diamonds noted that the lower price was caused by “a different mix of goods with a higher proportion of lower quality stones as well as a broadly weaker rough diamond market since mid-last year“.

Although some stones fetched between $1,000 and $4,600 per carat, the huge difference between Stellar Diamonds’ material makes it a high-risk gamble, in my opinion. And the firm’s balance sheet could find itself under fresh pressure should Chinese diamonds demand continue to flail.

The post Should You Go Bargain Hunting At Tullow Oil plc & Stellar Diamonds PLC? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Tullow Oil. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Platinum producer Lonmin (LSE: LMI) has been one of the standout performers during the past month, its share price striding 218% higher since the start of February. And sparkling stones digger Petra Diamonds (LSE: PDL) has enjoyed a 31% bounce during the period.

So can investors look forward to further gains in the weeks and months ahead?

China still tanking

A surging platinum price has been key to Lonmin’s spectacular rise over the past month.

The metal surged back above the crucial $1,000 per ounce level for the first time since last October this week, meaning prices have rocketed 15% since the start of 2016. But worries persist that recent rallies have become far too heady, and that persistent demand weakness will bring values crashing down to earth again.

These fears were given further fuel on Tuesday following the latest round of disappointing trade data from China. Exports tanked by an eye-watering 25% in February from a year earlier, the biggest decline since the 2008/09 recession throttled the global economy.

An earlier Lunar New Year Holiday this February, compared with 2015’s festivities, may have exacerbated the poor result. But with other manufacturing and factory data still steadily nosediving, today’s release comes as further evidence of China’s crashing economy.

China is responsible for around a third of total platinum demand, according to the World Platinum Investment Council, and the country’s jewellery sector consumes more than double the amount of platinum than the rest of the world combined.

But Lonmin isn’t alone in suffering from toppling Chinese commodity demand. Petra Diamonds advised last month that “a slowdown in retail demand from China” drove stones values still lower between July and December, prompting group revenues to fall 28% year-on-year to $154m.

Problems set to persist

Petra Diamonds is hoping to mitigate the impact of falling diamond prices by improving production at its Cullinan, Finsch and Koffiefontein projects in South Africa, work that should also improve carat quality.

Meanwhile, Lonmin is undergoing vast restructuring to slash costs and reduce output in a desperate bid to rectify platinum’s worsening supply/demand dynamics and prop up prices.

But these measures are not expected to revamp either firms’ fortunes any time soon, as underlying demand in the metals and diamond markets remain in the doldrums. Lonmin is expected to keep on punching losses until the end of fiscal 2017 at the earliest, while Petra Diamonds is anticipated to endure a further 20% earnings slide in the current period.

Meanwhile, the large extent of frothy buying activity means that investors should be braced for much more share price volatility. Indeed, sinking trader sentiment on Tuesday has pushed Lonmin’s stock price 8% lower on the day, while Petra Diamonds is currently nursing a 4% loss from Monday’s close.

I believe the prospect of prolonged demand weakness on both Lonmin and Petra Diamonds makes the two diggers a risk too far at the present time.

The post Are Lonmin Plc & Petra Diamonds Limited On The Way Back Up? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Royston Wild has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.